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The Cost of Long Amortizations

It can take many years after you close on a new mortgage before you’re paying more principal than interest. 

Once you get to that point, it can feel kind of empowering.  We sometimes humour ourselves and refer to that date as the “balance of power.” 

Here’s a table that shows how long it takes to reach this point for the five standard amortizations.  (Assuming a $100,000 mortgage at 4.25% with monthly payments.)

Amortization Payment Years Until Principal > Interest
15 years $750 0 (You pay more principal on day 1)
20 years $617 3.7
25 years $540 8.7
30 years $490 13.7
35 years $456 18.7

As this table shows, tacking on 10 years to your amortization means it takes 10 additional years to reach the balance of power (i.e., make payments that are more principal than interest).  Column #3 is roughly accurate regardless of the mortgage amount.

So the moral is this.  If you’re considering a 35-year amortization for your next home mortgage, be confident you can accelerate pre-payment at some point in the near future.  Otherwise, you’ll be an interest slave much longer than you want to be.

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Sidebar: 

  • Here’s a handy amortization calculator if you’d like to run your own scenarios.
  • The above guidance does not necessarily apply to mortgages on income properties.  On these types of properties, there may be valid business or tax reasons for leaving your payments low and keeping a long-term amortization. Speak with a mortgage planner for details.
  • Pre-payments and accelerated mortgage payments can make a world of difference.   For example, one could knock over five years off a 35-year mortgage by:
    • Making accelerated bi-weekly payments; or,
    • Making an annual lump-sum pre-payment of 1/2% of the original mortgage amount (i.e.  $500 a year on a $100,000 mortgage).