Only 20% of Canadians know how much interest costs on a 25-year mortgage, according to a TransUnion poll.
Those surveyed were asked what percentage of the original loan amount they’d pay in interest over 25 years. They were given various ranges to choose from. The correct range was 151-200% of the original loan amount.
It didn’t matter whether the respondent was a man or woman, or whether they owned a home. In all cases, only about 1 in 5 answered correctly.
Canadians with a university education did slightly better in the survey. Overall, however, 45% underestimated the total cost of interest over 25 years.
Once people know how much interest costs, they typically ask how they can minimize it. Here are a few examples along with some sample interest savings (based on a $250,000 mortgage, amortized over 25 years at 5.79% interest):
- Make weekly payments (savings: $40,181)
- Reduce amortization from 25 to 20 years (savings: $50,264)
- Put down an extra 5% (savings: $22,053)
Do all three and you’ll save a whopping $91,379 over 25 years!
Of course, doing even one is often easier said than done.
Last modified: April 25, 2014
I’m not sure how relevant that stat is – how many home owners actually take 25 years to pay off their homes? Obviously the quicker you pay it off, the less interest there is.
The other factor is that all the interest costs are in future dollars so if you were to convert to today’s dollars then it wouldn’t sound so bad.
I’m not sure how relevant that stat is – how many home owners actually take 25 years to pay off their homes? Obviously the quicker you pay it off, the less interest there is.
The other factor is that all the interest costs are in future dollars so if you were to convert to today’s dollars then it wouldn’t sound so bad.
In my business I see a lot of people ride out their full 25-year amortizations. People are spending more and getting more into debt. The numbers will probably rise significantly as 40-year amortizations and rising home prices make an impact.
As for future dollars, I’m not sure. I do know that a huge number of home owners take out home equity loans and refinance outside debt into their mortgage. I would imagine that the additional interest that accrues offsets the future value factor to some degree. – Dean
In my business I see a lot of people ride out their full 25-year amortizations. People are spending more and getting more into debt. The numbers will probably rise significantly as 40-year amortizations and rising home prices make an impact.
As for future dollars, I’m not sure. I do know that a huge number of home owners take out home equity loans and refinance outside debt into their mortgage. I would imagine that the additional interest that accrues offsets the future value factor to some degree. – Dean
Hi,
Just wondering hiw one “reduces the amortization from 25 to 20 years”. Once you enter into a mortgage agreement don’t you decide on the amortization at the outset? If you want 15 or 25 years don’t you contract that with the bank upfront. Why would the bank allow you to decrease the years during the mortgage life as they would receive less in interest – or is the reduction in amortization a result of pre-payment lump sums and extra payment privileges? Thanks
Hi,
Just wondering hiw one “reduces the amortization from 25 to 20 years”. Once you enter into a mortgage agreement don’t you decide on the amortization at the outset? If you want 15 or 25 years don’t you contract that with the bank upfront. Why would the bank allow you to decrease the years during the mortgage life as they would receive less in interest – or is the reduction in amortization a result of pre-payment lump sums and extra payment privileges? Thanks
Hi Reg,
It means choose a 20-year amortization instead of a 25-year amortization at the outset.
As you point out, you can also effectively reduce your amortization with pre-payments.
Have a good weekend.
Hi Reg,
It means choose a 20-year amortization instead of a 25-year amortization at the outset.
As you point out, you can also effectively reduce your amortization with pre-payments.
Have a good weekend.