In Quebec, borrowers can select an amortization period anywhere from 1 to 30 years, but most choose either 20, 25 or 30 years. Each option has benefits and drawbacks.
Amortization refers to the period required to repay a mortgage loan in full (assuming you make regular payments).
The longer the amortization period, the lower your monthly payments will be, but the higher the total interest paid. Conversely, a shorter amortization period results in higher payments but reduces the total cost of the interest.
The amortization period is usually chosen based on the desired monthly payment amount, budgetary considerations, future plans, and the overall financial structure.
This Decision Isn’t Set in Stone
It must be understood that this choice isn’t critical nor set in stone, as you can always modify the amortization period when you renew your mortgage contract, usually after 3 or 5 years.
Additional payments to your mortgage can also be made at any time: either in the form of an annual sum or an extra amount every month. In both cases, these extra payments directly reduce your amortization period.
Don’t be afraid to play around with the amortization period. It doesn’t lock you into a definitive reimbursement timeline. Borrowers can always shorten their amortization period and pay off their home more quickly over the years, if they wish to.
Financial security advisor and owner of Groupe Financier Symbiose
So, don’t overthink this decision. Instead, let your budget and future projects (including any money you’ll need to set aside for them) guide you.
The Most Common Amortization Options
As mentioned above, you must select an amortization period for the duration of your mortgage’s term, generally between 3 and 5 years.
Here’s what you can expect for each amortization period, assuming you make regular monthly payments:
Amortization Over 20 Years: A Quicker and Cheaper Reimbursement
Advantages:
- Less interest paid over the term of the loan.
- Faster equity accrual on the property.
- Mortgage loan paid off sooner.
Disadvantages:
- Higher monthly payments, which may restrict you financially.
Amortization Over 25 Years: The Right Balance
Advantages:
- Balance between affordable monthly payments and reasonable total interest costs.
- A popular option chosen by borrowers to optimize their budget.
Disadvantages:
- Higher cumulative interest than over 20 years.
Amortization Over 30 Years: Maximum Flexibility for Life’s Other Projects
Advantages:
- Lower monthly payments for easier budgeting.
- Ideal for buyers with more limited incomes or those who want financial breathing room.
- Allows borrowers to invest or save while repaying their mortgage.
- Leaves more money free for other projects: maternity leave, travel, retirement savings, studies, etc.
Disadvantages:
- Much higher interest paid over the term of the loan.
- Less equity accrued in the short term.
What Other Factors Should You Consider?
No universal answer exists when it comes to determining which is the best amortization period for you. Nevertheless, you may wish to bear the following factors in mind:
Your payment capacity: If you can afford higher payments, a shorter repayment period is advantageous.
Your financial objectives: If you want to minimize interest payments, opt for a 20- or 25-year amortization period. If you prefer greater financial flexibility, 30 years may be a better option.
Your risk tolerance: A higher payment may prove challenging to maintain in the event of unforeseen financial difficulties. Thus, 30 years may be a safer choice!
Your ability to enter the market: If the property market is expensive, a longer amortization period may help make homeownership more accessible.
Your emergency fund: If you have little or no savings set aside for emergencies and contingencies, opting for smaller payments is recommended, although this means a longer amortization period.
Your future projects: Don’t forget to include them when choosing your amortization period! As mentioned earlier, if your budget needs to cover important short-term projects, a long amortization period is probably best.
Professional Advice for First-Time Buyers
Cynthia Laventure almost always recommends a 30-year amortization period to clients buying their first home. This is to protect their finances during the first few years following the purchase, as there are lots of expenses to take care of during this period (welcome tax, minor repairs, decor, furniture, etc.).
It’s better to set lower payments initially and readjust later (when renewing the term). The amortization period can always be shortened then (by increasing the payments).
Financial security advisor
