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Interest, Terms & Amortization

     You are required to pay interest on the amount of the mortgage you have assumed. Interest rates can either be fixed, with the interest percentage remaining the same for the entire term of your mortgage. Or it can be variable, meaning that the lender sets the rate monthly, based on the current market rates. If you acquire a variable mortgage interest rate your monthly payments will remain the same for the term of your loan, but the amount of money put toward the loan itself will fluctuate, in turn, changing the principle of the mortgage. Protected variable rates are a segment of the variable interest rate that cap the interest at a fixed amount, that is, the highest interest rate point is predetermined.

     The term of your mortgage is the length of time that the interest rates are determined by, that is, at the end of each term (usually 6 months to 15 years) you either repay your mortgage in full or renew the mortgage; possibly changing the terms and conditions. It is assumed that the longer your mortgage term, the higher interest rates you will incur. It is suggested that if current interest rates are rising you should select a longer term and that if they are failing you should select a shorter term; locking in the rate when it's at its lowest point (you will have to watch market trends to determine when this is).

     The amortization period is the amount of time you have to pay off the entire amount of your mortgage. The longer you have to repay the loan, the lower you monthly installments will be. However, longer amortization periods mean longer interest payments, in turn, increasing the amount of interest you pay over time. Amortization periods can last anywhere from five to twenty-five years, depending on the conditions of the mortgage. The following chart provides examples of monthly payments, interest paid and interest saved, depending on the length of the amortization period.

Based on a $100,000 mortgage at a 10% interest rate.
Amortization period Monthly payment Total payments Total interest paid 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