Do you think it is a good idea to take out a longer amortization mortgage, say 25, 30 or even 35 years?

There are mortgages now available that permit mortgage brokers to find a mortgage that is even more personalized than ever. A new kind of mortgage has been available since the spring of 2006 that allows a longer repayment period of up to 35 years.

Is it a good idea to take out a longer amortized mortgage?

The purpose is surely not to take a longer time to pay off your mortgage, or to pay more mortgage interest on your home. In fact, most people will choose a 15 to 25 year amortization schedule.

But in some, it can be a good idea:

Upcoming income some people are just about certain of receiving a large increase in their future income, but they just don't have it yet. For example: - a spouse is in school, but will be finished soon - a salary is based, according to a collective bargaining agreement, on years of service - the income of a self employed person has not yet showed up in his tax returns

You prefer to be flexible in your payments. Some people, such as the self employed, seasonal workers, or people who work on a commission basis try to keep their mortgage payments low so they can cover the periods when their income is lower.

Rental property may influence how you want to repay the mortgage. By keeping the rental income up (mortgage payments down) because your income is tax deductible, you can reinvest the income instead of building the equity in the rental property.

You can actually shorten the payoff period of a mortgage. If you are afraid of being stuck in a 25 or 35 year mortgage, you can pay it off earlier (you can do this with a 15 year mortgage as well).

There are many strategies that we help our clients with that allow them to pay off their mortgages earlier than the actual amortization maturity. Signing a 25 or 35 year mortgage note does not really mean that you have to pay the mortgage for 25 or 35 years. The document you sign is not what fixes the payoff term, but the amount and number of payments you make on the mortgage.

You can make early payments and determine your own amortization schedule. You see, lenders will permit you to pre-pay a certain amount of your home loan payments. This in turn will allow you to increase the total amount you are paying on your mortgage, at your own pace. This can occur in either of two ways:

1.Make a larger mortgage payment each month. Most lenders will allow you to increase the amount you pay against your mortgage by 20% per year without any penalties for doing so. 2.Pay more money on the principal. Most lenders will let you designate an additional payment as "additional principal" to pay down the balance more quickly and faster, also for up to 20% per year.

Look at the following scenario:

A teacher who is a prospective home buyer is getting his graduate degree in nine months, at which time he is eligible for an automatic salary increase. He believes he is better off buying now rather than waiting until his increase. He can take out a 25 year mortgage at 5.4% and pay $1,209.17 per month, or a 35 year mortgage and pay $1,305.18. After two years, after this salary has increased by 20%, he starts paying an extra $200 on his home loan. By paying $1,253.18 instead of $1,053.18 per month, and if he makes no other changes, his mortgage will be paid off in 22.4 years, or 24.4 years in total.

So what do we learn from these examples? Taking out an extended amortization mortgage is not always the right solution, but for certain people in certain circumstances, it is ideal.