Extended Amortizations

Longer amortizations can lower your mortgage payments.

Can you still get 30 years to pay off your mortgage? Here's when you can, can't, (or maybe shouldn't) get an extended amortization.

What exactly is an 'extended' amortization?

Amortization is the length of time it will take you to pay off your mortgage entirely. The standard amortization for a mortgage is typically 25 years. Taking more time to pay off your mortgage is called an 'extended' amortization.

At one time, getting an extension to 35 or even 40 years was possible. Those options are now gone, with federal regulations capping down the terms. But 30-year amortizations may still be available to you, depending on the lender and the size of your mortgage down payment (along with other typical lender qualifications).

What are the pros of getting an extended amortization?

Extended amortizations of up to 30 years are offered under certain circumstances to assist affordability and access to homeownership by spreading your mortgage amount out over more years to lower your monthly payments.

An extended amortization is a good option if you need to free up some monthly cash flow, and are willing to trade that benefit for more mortgage payments and more interest paid over that time extension.

What circumstances allow a 30-year amortization?

Getting an extended amortization of up to 30 years may be possible if you have enough down payment for a conventional mortgage (20% or more, for a Loan-to-Value of 80% or less).

If you have an insured mortgage (less than 20% down), your only option is a 25-year amortization. You may have the option later to extend if you pay enough down and refinance, or if you sell your home and buy another one as a conventional mortgage.

An extended amortization is also subject to financial or credit approval by the lender. Talk to one of our expert True North Mortgage brokers to help sort out your details.

A 30-year amortization may be an allowable option when:

  • Buying your first home or next home with a conventional mortgage loan
  • Getting a Purchase Plus Improvements mortgage
  • Refinancing to change conditions or terms, or for debt consolidation, renovation, or asset enhancement — if you have enough equity built up in your home

Why wouldn't I want an extended amortization?

If you want (or need) to have lower monthly mortgage payments to free up immediate cash flow, then a longer amortization will help you achieve that affordability. However, it will cost you more interest.

Let's take a look at a simple illustration:

Home purchase price of $425,000 with a 20% down payment, 5-year term at 4.59% (our current low 5-year fixed-rate available)
  • For example-sake, let's say you'll keep this term and rate over a 25-year amortization — your monthly payment would be about $1,898, for $229,656 in total interest paid
  • Extended over a 30-year amortization, your monthly payment would be about $1,732, for $283,585 in total interest paid
  • You would pay $166 less per month with the extended amortization, but would make payments for an additional 5 years and pay $53,928 more interest

Your mortgage situation is unique. Our highly-trained brokers can outline all the details to help you make a clearer decision based on your financial needs and goals.

What about shortening my amortization instead?

There are many ways to shorten your amortization to save more cash, despite the length you signed on for when taking out your mortgage.

It depends on how flexible your mortgage is for allowable pre-payment privileges, or if you come into a large influx of funds, any pre-payment penalties that would factor in.

  • Paying more down on your principal as you go will shorten your amortization, and save you (potentially a lot of) money on interest.
  • You may wish to get a variable-rate term, which can take advantage of lower rates to help pay more down on your principal during that term.
  • At renewal time, you may be able to increase your monthly payments to formally reduce your amortization, depending on your mortgage fine print and lender (though this option may require a refinance).

Need a helpful mortgage renewal reminder? Get one here.

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