What is an amoritization schedule?

Ratehub.ca
by Ratehub.ca March 15, 2020 / No Comments

When you’re looking to but a home, there are lots of terms you’ll need to get familiar with. One of those term is amoritization. You’re also going to get very familiar with the concept of an amoritization shedule.

So what is an amoritization schedule? Here’s everything you need to know regarding amoritization schedules in Canada.

What is amoritization?

Amoritization is a broad financial concept, but for mortgages it refers to total life of your loan, over which repayments are made. In Canada, most mortgage amoritizations are 25 years. This is partly because insured mortgages have a maximum amoritization period of 25 years, set by the federal government. Other mortgages can have amoiritization periods of up to 35 years.

For mortgages, shorter amoritization periods will reduce the amount of interest you pay overall, but will increase your monthly payments. A longer amoritization period will do the opposite. To understand this in more detail, you’ll want to look at your amoritization schedule.

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What is an amoritization schedule?

An amoritization schedule is a table of regular payments, layed out over the course of the life of your mortgage, typically 25 years. Your amoritization schedule lists every payment, and specifies how much of each payment goes toward paying off the interest vs. the principal loan amount. In the case of a loan with changing interest rates, like a mortgage, the amoritization schedule will use the current rate, and be adjusted as rates change.

A mortgage amoritization schedule is an excellent tool to help you truly understand the ongoing costs of your mortgage.  If you’re current looking to buy a home, use our mortgage payment calculator to calculate an amoritization schedule for yourself.

Amoritization schedule example

We’ve used the Ratehub.ca mortgage payment calculator to generate a yearly amoritization scheule for a typical mortgage. For this example, we’ve used a Toronto home with a purchase price of $500,000 with a 5-year fixed term at 2.24%. The amoritization period is 25 years.

Year Total Paid Principal Paid Interest Paid Balance
2021 $25,794 $14,932 $10,862 $479,068
2022 $25,794 $15,268 $10,526 $463,800
2023 $25,794 $15,612 $10,182 $448,188
2024 $25,794 $15,964 $9,830 $432,225
2025 $25,794 $16,323 $9,471 $415,901
Totals at the end of your initial term:
Total (term) $128,970 $78,099 $50,872 $415,901
2026 $25,794 $16,691 $9,103 $399,211
2027 $25,794 $17,067 $8,727 $382,144
2028 $25,794 $17,451 $8,343 $364,692
2029 $25,794 $17,844 $7,950 $346,848
2030 $25,794 $18,246 $7,548 $328,602
2031 $25,794 $18,657 $7,137 $309,944
2032 $25,794 $19,078 $6,716 $290,867
2033 $25,794 $19,507 $6,287 $271,359
2034 $25,794 $19,947 $5,847 $251,413
2035 $25,794 $20,396 $5,398 $231,016
2036 $25,794 $20,856 $4,939 $210,161
2037 $25,794 $21,325 $4,469 $188,836
2038 $25,794 $21,806 $3,988 $167,030
2039 $25,794 $22,297 $3,497 $144,733
2040 $25,794 $22,799 $2,995 $121,934
2041 $25,794 $23,313 $2,481 $98,621
2042 $25,794 $23,838 $1,956 $74,784
2043 $25,794 $24,375 $1,419 $50,409
2044 $25,794 $24,924 $870 $25,485
2045 $25,794 $25,485 $309 $0
Total $644,851 $494,000 $150,851 $0

(Source: Ratehub.ca mortgage payment calculator)

Calculating an amoritization schedule

As you can see above, there are a lot of numbers to crunch when you’re calculating an amoritization schedule. Luckily, the Ratehub.ca mortgage payment calculator does the hard work for you. Put in some figures, like the purchase price, interest rate, and amoritization period, and the bottom section of the calculator will generate an amoritization schedule for you.

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The bottom line

An amoritization schedule is one of the more weighty elements of any mortgage application, but it’s an important piece of the puzzle. It helps you fully understand your long term repayment obligations, and plan how you’ll pay down your mortgage over time.

If you haven’t got a mortgage yet, use our mortgage payment calculator to calculate your amoritization schedule for different amoritization periods, and at different interest rates.

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