Should You Consider Extending Your Amortization Period?

As a homeowner in Edmonton, you’ve likely been keeping a close eye on the housing market and, more importantly, the fluctuating interest rates.

You may have heard that many Canadian homeowners are extending their mortgage amortization periods in response to rising interest rates. But is this a strategy you should consider for your own financial situation?

In this article, we’ll dive deep into what extending your amortization period means, why Canadian homeowners are considering it, and the alternatives to help you make an informed decision about your mortgage.

What Is Mortgage Amortization?

Before delving into whether to extend your mortgage amortization, let’s clarify what amortization means. In simple terms, it’s the process of paying off your mortgage over a set period. This length of time is commonly referred to as the amortization period.

During this time, you make monthly payments that consist of both principal and interest, gradually reducing your mortgage balance. Traditionally, most mortgages in Canada have a 25-year amortization period, which means you have 25 years to repay the entire loan.

The Amortization Extension Trend

Recent data from major Canadian banks, including the Royal Bank of Canada and Toronto-Dominion Bank, reveals a growing trend among homeowners. They are choosing to extend their mortgage amortization periods, often well beyond the conventional 25 years. But why are they doing this?

Coping with Rising Interest Rates

One of the primary drivers behind this trend is the surge in interest rates. Borrowers with fixed or variable-rate mortgages are feeling the pinch of higher monthly mortgage payments.

To ease their financial burden, many homeowners are opting to extend their amortization periods. This effectively spreads the repayments over a longer timeframe, resulting in lower monthly installments.

The Impact on Monthly Payments

By extending your amortization period, you can significantly reduce your monthly mortgage payments.

This extra breathing room can be a lifesaver in times of financial uncertainty or when trying to balance your budget in an expensive housing market like Edmonton.

The Pros and Cons Of Extending Your Amortization Period

Pros

Lower Monthly Payments – Extending your amortization period will unquestionably lower your monthly mortgage payments. This can free up cash for other financial goals or emergencies.

Improved Cash Flow – With more manageable monthly payments, you can have a better cash flow, making it easier to cover your day-to-day expenses and save for the future.

Short-Term Relief – Extending your amortization can provide short-term relief from high-interest rates, giving you time to assess your financial situation.

Cons

Increased Total Interest – While lower monthly payments may seem enticing, extending your payment period means you’ll pay more in interest over the life of your mortgage.

Longer Debt Commitment – Extending your mortgage means a longer commitment to debt. It might delay your plans to become debt-free and financially independent.

Potential for Negative Amortization – In some cases, extending the amortization period could lead to negative amortization, where your outstanding balance grows instead of decreasing.

Alternatives To Extending Your Amortization

Refinance Your Mortgage

Instead of extending your current mortgage, you could explore refinancing or debt consolidation options. This allows you to secure a new mortgage at today’s rates, or switch to a fixed-rate mortgage potentially lowering your monthly payments without extending the amortization.

Make Extra Payments

A shorter amortization period means you’ll pay off your mortgage faster and spend less on interest. However, this also means higher monthly payments. Consider whether you prioritize paying off your mortgage quickly or having lower monthly obligations.

Evaluate Different Mortgage Products

Speak to a mortgage broker about different kinds of mortgage products available in Edmonton. There may be alternatives that better suit your financial goals without extending the original amortization period of your mortgage.

FAQs On Extending My Amortization Schedule

How does extending my mortgage amortization period affect my total interest paid?

Extending your amortization period may reduce the monthly payment amounts but can increase the total interest you pay over the life of your mortgage.

Are there alternatives to extending my amortization that can lower my monthly payments?

Yes, making extra payments toward your mortgage principal, exploring different mortgage products and refinancing your mortgage can help lower your monthly payments without extending the amortization.

Is it advisable to extend my mortgage amortization if I plan to pay off my mortgage faster?

Extending your amortization period is not typically recommended if your goal is to pay off your mortgage faster. Consider other strategies like making extra payments instead.

What should I consider before extending my amortization?

Consider factors like the total interest paid, the desire to pay off your mortgage faster, alternative solutions, and the current and future interest rate environment.

So, Is An Extended Amortization Period Beneficial For You?

Extending your amortization period is a decision that should be made after careful consideration of your financial situation and long-term goals.

While it can provide short-term relief by keeping your monthly payments in check, it may come at the cost of paying more interest over time.

As a mortgage broker, I encourage my clients in Edmonton and beyond to consult with me to explore all available options and tailor their mortgage strategy to their unique circumstances.

If you’re wondering whether longer amortization periods are right for you or not, don’t hesitate to reach out.

I’m here to help you navigate the complexities of the Canadian mortgage landscape, ensuring that you make informed decisions that align with your financial aspirations.

Sandra Forscutt – Your Trusted Mortgage Broker in Edmonton

Your journey to mortgage management is unique, and I’m here to guide you every step of the way. Feel free to contact me anytime for personalized assistance tailored to your specific needs!