If you plan to extend your mortgage amortization at a time other than renewal, you'll have to refinance, which requires you to requalify for your mortgage at today's rates.If you plan to extend your mortgage amortization at a time other than renewal, you'll have to refinance, which requires you to requalify for your mortgage at today's rates.

An extra five years might not seem like much, but the difference can be starting, says one expert.

Rising interest rates are making it challenging for Canadian homeowners to afford their biggest asset, leaving them scrambling for options.

Jordan Kaye, spokesperson at Zolo Realty, says if you have less than 20 per cent equity in your home, the longest amortization you can choose is 25 years. If, however, you have more than 20 per cent equity, you can extend your amortization to 30 years. Doing this will help lower your monthly payments in the short term.

One downside of doing this, Kaye explains, is that spreading your mortgage balance over a longer period means you’ll pay more interest over the long term. “While an extra five years might not seem like much, the difference can be startling if you have a large mortgage balance.”

Kaye offers an example: If your mortgage is $500,000 amortized over 25 years at 5.24 per cent, your monthly payment will be $2,976.71, and you’ll pay $393,014 in interest over the life of the loan.

If you extend your loan term to 30 years, your monthly payment will drop to $2,740.52, but the interest you’ll pay over the life of your loan rises to $486,587, which works out to a difference of $93,573.

Another drawback to extending your amortization is lengthening the time to mortgage freedom, says Kaye. It’s important to consider when your mortgage will be paid off before extending your amortization: Will it be after you retire or before? Are you planning to retire with enough income to cover a mortgage? If not, how will extending your mortgage impact your plans?

Jason Heath, managing director at Objective Financial Partners, agree. “This can mean you’re unable to pay down debt before you retire, which can impact your long-term financial health.”

Finally, if you plan to extend your mortgage amortization at a time other than renewal, you’ll have to refinance your home. Kaye says refinancing requires you to requalify for your mortgage at today’s rates and may require you to pay some fees.

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