I recently had to take out a mortgage for a property I was buying (personal residence). I agree with the general consensus that a shorter amortization is better, far less interest over the life of the mortgage. Nevertheless, I got a 35 year amortization and here is why.
I can prepay 10% of the original mortgage amount once a year (i.e. $10,000 for every $100,000 borrowed. In my case about $30,000 per year). This prepayment goes directly to the principle.
I can increase my payments by 10% per year and the increase goes directly to principle (i.e. in year 1 I pay $1000 per month, in year 2 I pay $1100 per month, in year 3 I can pay $1210 per month).
I can also double my monthly payment (i.e. pay $2000 monthly in year one, $2200 monthly in year 2 etc.).
I understand these prepayment options to be quite typical and widely available at most insitutions (btw, I pay bi-weekly accelerated but am just using monthly numbers as examples).
Long story short, but doubling my payments, increasing them by 10% per year and making the 10% yearly prepayment, a 35 year mortgage gets reduced to about a 5 - 7 year mortgage. Even if you didn`t make the 10% yearly prepayment it is a considerable shaving off of the 35 years.
So, assuming that you have financial discipline, why not get a 35 year instead of a 25 year. You can simply set up the payments to make it a "25 year" mortgage, and you also have the benefit that if something unexpected happens you can drop back down to the monthly payment that is based on the 35 year term at any time.
I can prepay 10% of the original mortgage amount once a year (i.e. $10,000 for every $100,000 borrowed. In my case about $30,000 per year). This prepayment goes directly to the principle.
I can increase my payments by 10% per year and the increase goes directly to principle (i.e. in year 1 I pay $1000 per month, in year 2 I pay $1100 per month, in year 3 I can pay $1210 per month).
I can also double my monthly payment (i.e. pay $2000 monthly in year one, $2200 monthly in year 2 etc.).
I understand these prepayment options to be quite typical and widely available at most insitutions (btw, I pay bi-weekly accelerated but am just using monthly numbers as examples).
Long story short, but doubling my payments, increasing them by 10% per year and making the 10% yearly prepayment, a 35 year mortgage gets reduced to about a 5 - 7 year mortgage. Even if you didn`t make the 10% yearly prepayment it is a considerable shaving off of the 35 years.
So, assuming that you have financial discipline, why not get a 35 year instead of a 25 year. You can simply set up the payments to make it a "25 year" mortgage, and you also have the benefit that if something unexpected happens you can drop back down to the monthly payment that is based on the 35 year term at any time.