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A consumer guide and workbook - page 35 / 79

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28

Amortization

This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over 15-, 20- or 25-year periods. The longer the amortization, the lower your scheduled mortgage

payments, but the more interest you pay in the long run.

Amortization

Monthly

Total

Total

Interest

period

payment

payments

interest

savings**

25 years

$ 895.00

$268,500

$168,500

n/a

20 years

$ 952.00

$228,480

$128,480

$ 40,020

15 years

$1,063.00

$191,340

$ 91,340

$ 77,160

10 years

$1,311.00

$157,320

$ 57,240

$111,260

Payment comparison over various amortization periods*

A shorter amortization means savings on interest payments. This example is based on a $100,000 mortgage at a 10% interest rate.

paid

*These are rounded numbers for illustrative purposes only. **Assumes a constant interest rate for the entire amortization period.

Interest

Cost per

Interest

Cost per

Interest

Cost per

rate (%)

$1,000

rate (%)

$1,000

rate (%)

$1,000

6.0

$ 6.40

8.5

$ 7.95

11.0

$ 9.63

6.5

$ 6.70

9.0

$ 8.28

11.5

$ 9.98

7.0

$ 7.01

9.5

$ 8.62

12.0

$10.32

7.5

$ 7.32

10.0

$ 8.95

12.5

$10.68

8.0

$ 7.64

10.5

$ 9.29

13.0

$11.03

Monthly payment per $1,000 borrowed*

*Amortized over 25 years based on 10% down payment.

Example: Oliver and Janet can afford $800 per month for a mortgage payment. If the pre- vailing mortgage interest rate is 6%, they will qualify for a mortgage of $125,000 amortized over 25 years. If the prevailing mortgage rate is 13%, they will qualify for a mortgage of $72,600. The lower the interest rate, the higher the mortgage for which they qualify.

STEP 5 • ARRANGING YOUR MORTGAGE

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