If you‘re aiming to borrow the maximum amount, a 30-year term is the ideal choice. However, if you’re planning to make a larger down payment and are unsure which term suits you best, it‘s important to understand the differences between the two options.
The main difference between 25-year amortization and 30-year amortization is the length of time it takes to pay off the mortgage and the monthly payments.
For the monthly payments, with a 30-year amortization, your monthly payments will be lower because the loan amount is spread out over a longer period of time. Conversely, with a 25-year amortization, your monthly payments will be higher because the loan is repaid more quickly.
For Example: If you borrow $500,000 at a 4% interest rate:
Over 30 years, your monthly payment will be around $1,902.
Over 25 years, your monthly payment will increase to around $2,104.
In comparison, the monthly payment difference is about $200 per month, which adds up to approximately $2,400 in a year.
For total Interest Paid, you will pay more interest with a 30-year amortization over the life of the loan because the loan is outstanding for a longer period, causing more interest to accrue.
With a 25-year amortization, you’ll pay less total interest, as you‘re paying off the principal faster, reducing the amount of interest accumulated over time.
