What Is An Amortization Schedule?
The amortization schedule is a document included with every mortgage commitment showing a schedule of payments. The schedule of payments breaks down each individual principal payment and interest payment which makes up the total mortgage payment. The amortization period is the amount of time it will take to pay the mortgage off entirely.
What Information Is In The Amortization Schedule?
An amortization schedule will usually display the following details about the mortgage:
- Mortgage Amount or Loan amount
- Mortgage rate
- Interest type (fixed rate, variable rate, or adjustable-rate)
- Monthly payment or loan payment
- Principal and interest payment
- The total interest paid for the life of the mortgage (mortgage term)
- The total principal paid for the life of the mortgage (mortgage term)
What Is An Amortization Period?
An amortization period is the length of time (in years and months) it will take to pay the principal mortgage amount in full based on the interest rate set for the mortgage term.
Shorter amortization periods will increase the mortgage payment, whereas a longer amortization period will reduce the mortgage payment.
How Long Can The Amortization Period Be?
When getting a high ratio mortgage (CMHC insured mortgage), the maximum amortization period is 25 years. With conventional un-insured or un-insurable mortgages, you may opt for longer than a 25-year amortization. The maximum amortization period most lenders allow is 30 years.
To qualify for a mortgage based on A lenders debt servicing ratio requirements, a longer amortization will make it easier to qualify and fit within the GDS (gross debt servicing ratio) and TDS (total debt servicing ratio) as the mortgage payment will be lower. A shorter amortization period will increase the mortgage payment and thus increase the debt servicing ratio.
Most private mortgages, second mortgages or home equity loans have an interest-only payment schedule, meaning there is no amortization period. This means each scheduled payment will only be applied to the interest component based on the interest rate, and no part of the principal loan amount will be paid.
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