By Heinz Bulos
For many borrowers, a low, affordable amortization is the primary consideration rather than the total interest expense.
- Get an adjustable-rate loan, to take advantage of rate dips, but only if there’s a rate cap. And make sure you will still be able to afford the monthly amortization in case the rate reaches the ceiling.
- Go for the longest term. The typical duration of a mortgage is 20 years for houses and lots and 10 years for condominiums. Nowadays, some banks offer as long as 25 years for houses.
- Opt for a straight-line amortization schedule. Your monthly payments are fixed for the entire duration, unlike declining-balance, which starts off with higher payments in the first few years.
- Pay twice a month. It won’t lower your amortization any more than twice a month but it will let you feel less of the pinch. And it’s definitely easier on the wallet than paying fortnightly.
- Some banks let you pay just the interest for the first year or other set period. You pay a lower monthly amortization in the short run. But do so with extreme caution.
- Other lenders let you pay very low monthly amortization then require you to make huge balloon payments every quarter or every year. It makes sense only if your earning pattern is similar.
- Make pre-payments to your principal and ask your bank to adjust your monthly amortization based on the new principal balance.