Many Russians have chosen mortgage lending to acquire the cherished real estate. Conscientious borrowers under favorable life circumstances seek to quickly close a loan, which puts a burden of responsibility. What could be better than getting rid of debt? However, there are many nuances in this matter that people do not know. It is important to understand how to properly repay the mortgage and still win. One cannot do without professional advice.
Early repayment: is it profitable or not?
Many consumers do not even realize that there is a possibility of early repayment of the mortgage. Some citizens have heard of this, but they are not enthusiastic about it. And all because they do not know that it is possible to benefit from this. People believe that the bank will take interest anyway, so do not push yourself into an even more difficult situation.
If you do not know whether early repayment of the loan is beneficial, it is worth listening to the opinion of experts. Experts say with confidence that such a procedure can be profitable for you. But you need to understand all the nuances.
What is credit for us? This is an opportunity to use other people's money. But the bank monthly requires you to pay a fee in the form of interest for the use of its resources. From this it follows that a smaller amount of debt runs less interest. That is why early repayment is a good opportunity to reduce interest and reduce the overall overpayment.
The greatest benefit awaits those people who took a loan for a very long term or its amount was large. Remember that early payments are most effective at the initial stage. In the future, their effectiveness is gradually reduced, but still provides an opportunity to save.
Payment schedule
You should always carefully read the terms of the contract. Of course, far from all of its conditions are clear to us. Pay attention to the payment schedule. Assume that the bank has chosen the 29th day of each month to make a monthly payment. If the client has funds before the scheduled deadline, for example, the 15th, he can pay the fee in advance by adding some other amount to it.
Not all borrowers know that on the 29th they still have to pay. After all, the amount paid not on schedule goes to early repayment, reducing the total amount of debt. Interest on the amount owed is usually restated.
The Bank offers customers several types of schedules: annuity and differentiated. In the first case, you pay the same amount every month, one part of which repays interest, and the second - the body of the loan.
In the second case, the loan amount is divided into equal parts. As for interest, they are charged on the balance of the debt. Such a schedule is not entirely convenient. But it is more financially beneficial for consumers.
There are two options for changing the schedule:
- You can shorten the duration of your contract by increasing the payment.
- And you can reduce the size of the payment while maintaining the maturity.
Before changing the schedule, determine the most profitable option for you.
When is it profitable to shorten the term?
Typically, loan terms are reduced by those people who have signed an annuity contract. Such citizens usually have the means and are able to pay large amounts, but are insured against possible unforeseen situations. Clients may pay amounts in excess of the required payment. The excess goes to pay off the bulk of the debt. But the size of the payment will remain unchanged. When most of the debt is repaid, people tend to get rid of the loan as soon as possible.
With annuity payments, it is beneficial for people to pay large amounts at first. This allows you to reduce the price increase and reduce loan terms.
Please note that in order to reduce the terms of the mortgage and the price increase, it is not necessary to make a large payment once. You can pay a monthly amount in excess of the mandatory payment. In this case, the overpayment will decrease.
When is it better to reduce the amount?
The borrower can choose an early repayment, using a reduction in the size of payments. This option is very convenient. If you want to deposit more than the amount indicated in the schedule, the payment amount will decrease, and the terms will remain the same.
According to experts, early repayment by reducing the amount of payments is completely unprofitable for consumers. If the creditor allows multiple payments of large amounts, then this option can be considered, especially when the schedule is differentiated.
It is impossible to give universal advice to people who want to close their mortgage ahead of schedule. Much depends on the life situations of the family, financial situation. We can only consider the various situations that people face in order to be at least a little prepared for them.
Tip 1
Read the mortgage agreement very carefully before concluding it. Sometimes banks prescribe the possibility of charging fines for trying to close a loan earlier. If there are no pitfalls in the contract, notify the employee of the financial organization that you intend to repay the loan ahead of schedule. Then make a payment and check the payment schedule changes.
Tip 2
Consider which early repayment option is best for you. Discuss the situation with your family. Perhaps members of seven will not agree to additional costs, realistically assessing the situation. It is not always economically justified to allocate large amounts from the family budget and severe restrictions. Remember that when prices rise, so does the income of citizens.
Tip 3
If the bank prescribes the number of payments that you can make in addition to the main amount, it is more convenient to change the schedule by reducing the contract period. To choose the best option for repaying a mortgage, you need to evaluate the financial possibilities by comparing options for reducing the size of payments and terms.
Tip 4
Usually people assume that their material condition may worsen. But at the moment they are able to pay large amounts. In this case, reduce the size of monthly payments.
Tip 5
If you have a certain amount of money, you need to use it wisely. If you make it as a repayment of the loan amount, access to it will be limited. Remember that in life there are different situations. If you need money, you can no longer take it. Therefore, it is better to make a deposit. In this case, the money will work for you. You can pick them up at any time.
When is it better to repay a mortgage ahead of schedule?
Mortgages are long-term loans. Specialists recommend making premature payments only at the initial stages. Remember that sometimes enterprising banks prohibit citizens from making early payments in the early years. Thus, financial institutions in advance deprive you of the opportunity to save.
Instead of an afterword
The prospect of getting rid of loan obligations is tempting. When deciding, think well. Unfortunately, not every family can boast of a stable financial situation. Unforeseen situations happen in everyone’s life. Is it worth it to limit yourself in everything? Sometimes, of course, it’s worth it. It is important to properly analyze your capabilities. Perhaps it will be easier for you to gradually pay the required payments and feel more comfortable. The decision is yours. Whatever it is, consult a specialist to avoid unpleasant surprises.