Amortization

[jadeboy]

I am a little confused about amortization.

If I have an open and variable mortage that has an amorization of 25 years. If I plan to paid the off the mortage in 5 years, do I have to paid all the interest over that 25 years or just the interest of the 5 years? I plan to put large lump amount every year.

How does it exactly work? I know longer amortization period will provide less monthly payment but a larger overall interest payment.

[Maddog55]

AFAIK, as long as its an "open" mortgage, then you can pay it off without penalty. And you would only pay the interest on the time you carried it.

I have an open mortgage on one of my houses and my banker said I could pay it off without penalty.

But I would phone your lender and find out for sure.

[el-nino]

there are some fees to pay off a mortgage. but if your mortgage is open there are no Penalty fees which can be 3 month interest. 6 month interest or Interest Rate Differential.

[jadeboy]

To confirm:

A 400K mortage, with 25 years amorization, 5 years interest term.

If I took 25 years to paid of the mortage my total interest payment is "284,140.68".

But If I paid if off in 5 years then my total interest payment is "89,719.85"

I think I understand now.

[Frosty]

I am assuming that you would make a lump sum payment after 5 years for the remaining balance? In that case, you should only have to pay the remaining balance (no interest) plus a fee. When I bought out mine, the bank charged me (IIRC) one months full payment plus the residual principal.

If you're not going to make a lump sum payment, and instead are thinking of doubling or tripling payments, I'd think you'd be better off to talk to a broker and re-negotiate a better amortization.

[jadeboy]

My plan is to make Large lump sum payment.

[adDiction]

you can cut down your interest significantly by doing bi-weekly rapid payments rather then plunking down all your hard earned money. Rapid means your adding an extra mtg payment in a year and it's broken up over the 26 payments periods. This SIGNIFICANTLY reduces your interests costs over the years of your mtg. If you pay off your mtg on your 5 year maturity date there is no penalties. There is if you pay it off before that unless it's an open mtg. But even some open mtg's have penalties if you pay them off in full in the first two year's. Check with your lender or come see me. I'm a financial advisor at TD Canada Trust in country hills. Play with our mtg payment calculator on our website and it will show you how much your amortization gets cut down by doing this method. You should always plunk down your tax return on the mtg every year. That should keep you ahead of your interest costs.

[hadookin]

Just call your bank rep, he'll be more than happy to explain what king of mortgage you have and how you can go about paying it out early.
You can get mixed advice here, but only your bank knows your specific situation.

[hondaluv]

Pm >Percy< he is a broker here on beyond he should be able to help you

[adDiction]

I've worked with Percy....and still work with him...good guy