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The
Amortization of a Mortgage
The amortization of a mortgage refers to the total number
of years required to pay back the entire amount borrowed.
While the most common (and maximum) amortization period
is 25 years, you can accelerate it to a shorter period
of time in order to save on interest charges as long as
you are comfortable with the larger payments.
Comparison
chart of the interest paid over various amortization
periods
(Calculations are based on equal
monthly payments being paid on a $100,000 mortgage
with a 7% interest rate) |
Amortization
Period |
Monthly
Payment |
Total
Payments |
Total
Interest |
Interest
Savings |
25
Years |
$700.00 |
$210,120.00 |
$110,120.00 |
None |
20
Years |
$770.00 |
$184,635.00 |
$84,635.00 |
$25,485.00 |
15
Years |
$895.00 |
$160,785.00 |
$60,785.00 |
$49,335.00 |
10
Years |
$1,155.00 |
$138,715.00 |
$38,715.00 |
$71,405.00 |
The Term of a Mortgage
The term of a mortgage refers to the number of months
or years that the lender and borrower commit to one another
at the quoted interest rate and agreed-upon mortgage features.
It differs from the amortization period in that mortgage
terms usually range from 6 months to 5 years, while it
may require a 25-year amortization period to pay back
the entire borrowed amount. Each time a term is up, you
must either renew for another term with your current lender
at the new rates or find a different lender.
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