Early repayment of the mortgage. What is more profitable?
Having taken out a mortgage loan, many seek to repay it ahead of schedule at the first opportunity. As a rule, we are talking about partial early repayments, and not the full amount of the remaining debt. Obviously, early repayment attracts both by the opportunity to pay earlier to the bank and, ultimately, to reduce the total amount of the mortgage overpayment.
So, having collected some amount for partial early repayment, you write a statement to the bank, where you are asked to indicate how recalculate a payment schedule and two options are proposed
- Reduce loan term... That is, your monthly payment remains the same as it was before, but the total term of the mortgage is reduced.
- Reduce monthly payment... In other words, the loan term does not change, but your monthly payment decreases, as a result, the level of obligations to pay the monthly payment becomes lower.
What is more profitable? Let's try to figure it out. There is a popular opinion that the first option, which provides for a shorter period, is more profitable than the second. How could one doubt this? Take, for example, 1,000,000 rubles for 3 years. And in a year we will repay 500,000 ahead of schedule. will help to calculate for an overpayment of 111 696.24 rubles, and for 130 656.11 rubles. Everything seems to be true with the statement: the first option seems to be more profitable. However, let's take a closer look at these payment schedules.
According to the first schedule, the monthly payment remains 33,214.31 rubles.
According to the second - 9 672.39 rubles. In this situation, it is rather strange to compare these two options in terms of the size of the final overpayment, since they are obviously unequal. In the first case, we have to pay several times more per month, it would be strange to demand the same overpayment from the second option. Let's remove this injustice, and we will spend the same amount per month in the second option as in the first. To do this, we will use the difference in monthly payments for early repayment. Those. in addition to paying 9,672.39 monthly payments, we add (33,214.31 - 9,672.39) 23,541.92 rubles for early repayment, again we will make this repayment using the option of reducing the monthly payment, leaving the original term unchanged. We will do the same with subsequent payments. Here you can see the calculation
As you can see, in this case, the amount of overpayment to a penny coincides with the first option, therefore both options for early repayment with a decrease in the term or a decrease in the monthly payment are equivalent in terms of the amount of overpayment if the loan is repaid according to the above scheme. If you remember that the second option has an additional feature in terms of risk reduction: by reducing the amount of the mandatory monthly payment, your financial stability becomes higher: in the event of any unforeseen circumstances, when income may decrease, the risks of non-payment of the loan are less due to the reduced mandatory monthly payment. In such circumstances, the second repayment option seems ideal: while reducing risks, you do not overpay extra to the lender.
Of course, it is worth noting that in practice there are limitations that can change the view of choosing an option with less overpayment. This may include the following features:
- minimum early repayment amount... Quite a typical situation is when the loan agreement indicates such an amount below which early repayment is simply impossible. In this case, if the difference between monthly payments, which was supposed to be directed every month for early repayment of the debt, becomes less than the specified threshold amount, then repayment can be carried out only after a sufficient amount has been accumulated for several months. In this case, the overpayment between the two options will be all the more noticeable, the more time will be required to accumulate the minimum possible amount for early repayment.
- Early repayment penalties... As can be seen in the second repayment option, a larger number of such operations is required, therefore, the fact that a larger number of fines are applicable may negatively affect the attractiveness of the option to reduce the monthly payment.
- Early repayment fees... The situation is in many ways similar to fines. It is worth noting that some lending institutions like to distinguish between the concepts of "fines" and "commissions". So, for example, declare in your marketing materials that early repayments on a mortgage loan are assumed without any penalties, and in the tariff book you can find a commission "for recalculating the payment schedule for early repayment." The situation with commissions is complicated by the fact that, as a rule, they can arise due to the necessary accompanying cash and settlement operations, and will clearly not be formulated as referring to early repayment of a mortgage. This is most relevant for the case when the bank resold your mortgage loan to any other organization, but you still make monthly payments to the bank where you signed the loan agreement. In this case, you transfer your monthly payments to the account of the new owner of the mortgage. This can be either an account of an organization in the same bank, or an interbank transfer in general. At the same time, the bank may have a special commission regime for loans that it resold. So for monthly payments there may be no commissions, but if you want to make an early repayment, then full-fledged tariffs for interbank transfers may come in here, for example, 3% of the transfer amount.
- The need for some additional formal procedures... For early repayment, at least, you need to write a statement. To do this, you need to specially come to the bank, stand in line, spend time. Taking into account that such an application is often required to be submitted no later than a certain number of days before the date of payment of the monthly payment, it may be necessary to schedule a separate visit for this. In the second option, due to the greater number of early repayments, more of your time will be required for such procedures.