Thanks to the development of mortgage lending in the country and its active government support, the number of families who purchased housing on credit is growing every year. The long settlement period for housing loans makes you wonder what is the most profitable way to pay off your mortgage, and whether it is possible to significantly reduce interest if you close it early.
To understand which method of repaying a mortgage is more profitable, you should understand the terms of the loan agreement, calculate various options for early loan repayment and find out the opinion of professional economists.
Dependence of the mortgage payment scheme on the terms of the agreement
For each significant overpayment, you must contact the bank
According to banking agreements, housing loans can be repaid with annuity or differential payments. The difference depends on the method of calculating and paying interest. In annuity calculation, when repaying the loan debt, the borrower:
- initially pays most of the interest;
- the lion's share of the principal debt is paid before the end of the loan term;
- repays the debt in equal installments.
In this case, an independent increase in the amount of payments when repaying the loan will not reduce either the mortgage term or the amount of the payment. For each significant overpayment, you must contact the bank so that specialists will redo the payment schedule.
Differentiated accruals differ in that payment of the loan body is distributed among all payments in equal shares. Accordingly, the amount of interest decreases monthly, which is calculated each time from the amount of the decreasing principal debt.
By increasing the monthly payment, you can reduce the interest component, reducing not only the loan term, but also the amount of overpayment. In this case, you will have to contact a bank specialist once - before the last payment, in order to agree on its final amount.
Partial early repayment of the mortgage with this accrual method is preferable. However, most of the interest on differentiated payments is taken into account at the beginning of repayment. The first payments in the schedule are the maximum, and, in the case of a mortgage, quite significant:
- an official income is required that would allow one to cope with the initial payments;
- When assessing solvency, it is more difficult to obtain bank approval for a mortgage.
Therefore, more than half of the banks lending to citizens use the annuity payment system.
About interest calculation schemes
Often, clients seeking to obtain financing for the purchase or construction of their own home are interested in how the mortgage is paid, since a lot depends on the method of calculating interest. Thus, the differentiated method allows you to regularly reduce the amount of interest payments due to a constant reduction in the amount of the principal debt; the annuity method of calculation has its advantages in the form of a stable amount of mandatory payments.
For those borrowers who are looking for an answer to the question of how to pay off their mortgage faster, it is important to compare the interest calculation schemes offered by the lending bank in order to choose the most profitable option.
Annuity
The annuity interest calculation scheme is particularly popular among banks, since it allows them to receive stable interest for the use of borrowed funds by clients, regardless of how much of the principal debt has already been repaid in a given period of time. For the borrowers themselves, this scheme is convenient only because the amount of monthly payments does not change throughout the entire loan term, which makes it easy to plan their own budget. It should be taken into account that the annuity scheme for calculating interest ultimately leads to a larger overpayment than a differentiated one.
Differentiated
allows you to significantly reduce the amount of overpayment, since monthly interest payments are accrued each time on a new balance of the principal debt, which tends to be constantly reduced. The disadvantage is the large amount of payments in the first months of repayment of the loan, but it should be borne in mind that each subsequent payment is reduced compared to the previous one due to a reduction in the principal debt.
Is it profitable to pay off your mortgage early?
There are two options for repaying mortgage loans early: full closure or partial. In each case, you should check the contract. It may stipulate, if not a ban, then penalties for early payment of the loan. In this case, we must consider what is more profitable - to continue payments according to the schedule, or to pay the fine and reduce the amount of debt, or to pay the bank in full.
Overpayments that occur on the borrower's account during annuity payments are not taken into account by the bank in the current payment period. The amount corresponding to the amount of the established payment is debited from the account monthly. Only before the last scheduled payment, the balances are summed up.
When making annuity payments to partially advance the loan payment, there are options for adjusting the payment schedule. To make changes, early repayment must be agreed with the bank. Having received a large amount of money or having accumulated funds in your account that can significantly reduce the amount of your mortgage, you can use the bank loan recalculation service.
In this case, banking specialists will offer:
- reduce the payment period, leaving the payment amount unchanged;
- reduce the monthly payment, but do not change the repayment duration.
Economists advise shortening the mortgage term. Moreover, the sooner a significant payment is made, the more profitable it is. Savings will occur not only from a reduction in interest on the loan, but also due to a reduction in the amount of monthly banking services.
Reducing the amount of payments is beneficial for those who expect to reduce the monthly burden on the budget. This will help in situations where the borrower’s financial stability has weakened since receiving the loan. The online mortgage calculator of the bank where it is provided will help you calculate the difference in savings on these types of changes in the payment schedule.
How to quickly pay off a mortgage: schemes
A mortgage is one of the most popular ways to purchase your own home. Unfortunately, the majority of our compatriots do not have the opportunity to accumulate a sufficient amount that would be enough to buy a home, and therefore a credit relationship with a bank may become almost the only option for resolving this situation.
It is quite natural that a mortgage loan is characterized not only by a significant size, but also by the duration of the credit legal relationship. In an effort to get rid of debts, a person considers the most current schemes for early loan repayment. There are many such options, however, before choosing one of them, you need to carefully study their features.
How to quickly pay off a mortgage at Sberbank (are there any special features)
Recent years have been characterized by a huge variety of mortgage products. And one of the innovators in this area is Sberbank. If you believe statistical reports, about 40% of all mortgage loans received by citizens of the Russian Federation are in one way or another carried out through Sberbank.
Many users are interested in ways to quickly pay off their mortgage at Sberbank.
Among the main options it should be noted:
- Careful planning of the family budget;
- Avoidance of late payments, since any failure to comply with the schedule may entail penalties from the bank;
- If the mortgage is issued at high interest rates, do not be afraid of refinancing;
- The use of various government programs aimed at supporting the population. So, for example, under the program to support large families, the amount of assistance can be up to 30% of the loan balance, but not more than 1.5 million rubles.
Take out a loan to pay off your mortgage
One of the most popular ways to pay off mortgage debt is a loan taken to pay off a mortgage from another bank. This procedure is better known among consumers under the name refinancing.
In the case of refinancing, the user turns to another bank that is ready to offer more favorable rates. In other words, when refinancing, the loan is sold to another bank. The bank that refinances the loan amount pays the borrower’s debts to the first bank, and as collateral takes the consumer’s apartment as collateral. This method is widely used and has significant benefits for users.
However, experts recommend resorting to refinancing only in cases where the difference between rates is at least 2-3%.
More recently, banks issued loans at 15-16%, while today the weighted average rate has dropped below 10%. And if several years have passed since you received the loan, refinancing will help to significantly reduce the cost of the loan. In some situations, users will be able to reduce their costs of servicing mortgage debt by at least a quarter.
It is also possible to obtain a non-targeted loan to pay off a mortgage. However, given the current rates, this option is unprofitable for consumers, since the rates on non-targeted loans are several times higher than similar mortgage rates, which will entail a significant increase in the burden on the borrower’s budget.
Tax deduction
For those citizens who are officially employed and from whose earnings a 13% income tax is withheld, they can count on a tax deduction from the cost of purchased housing.
Thus, if a user takes out a mortgage from a bank, he can qualify for a refund of part of the funds in the form of 13% of the amount spent. In this case, a condition is put forward that the amount of deduction does not exceed 2 million rubles. For example, when buying an apartment for 2 million rubles, the consumer will be able to return 260 thousand rubles plus 13% of the amount of interest paid.
However, it is worth noting that the tax deduction can only be issued once.
You can get it in two ways - through the tax office or through the accounting department of the enterprise where the person is officially employed. In the first case, the user can immediately receive the entire deduction amount using the bank details he previously specified. But secondly, for a certain period of time taxes will not be withheld from the user, and he will receive his salary in full.
Maternal capital
Another popular way to pay off mortgage debt is to use a maternity certificate.
In our country, every woman after the birth of her second child claims to receive maternity capital in the amount of 453 thousand rubles.
In the case of a mortgage, this amount can be used both for the down payment and for repaying the loan. Maternity capital as a means of getting rid of debts has a fairly simple procedure, and to use it you will need to provide the creditor bank with a certificate of receipt of maternity capital, enter into an agreement with it to write off funds as a partial repayment of mortgage debt, and register the agreement with the Pension Fund.
Pay biweekly rather than monthly
This scheme provides that payments will be made not once a month, as with standard mortgage programs, but every 14 days. Thus, during the year the borrower will make 26 payments.
This scheme has a lot of benefits and advantages. Among the main circumstances that force us to pay close attention to the scheme, it is worth noting significant savings on interest payments, as well as a reduction in the duration of credit legal relations. For example, if you have a loan of 3 million rubles for 15 years, the monthly payment will be equal to 39,952 rubles, while under the “Once every 14 days” program it will be 19,976 rubles.
As a result, due to the fact that the number of payments will be increased several times, the borrower will repay his obligations in full 3.3 years earlier. And over the specified period, the amount of savings on interest payments will exceed 1 million rubles.
However, such a scheme is not implemented by all banks, and this circumstance should be taken into account.
Renting an apartment
If a person has another home, he can rent out an apartment purchased with a mortgage, thereby relieving himself of the financial burden.
However, in order for the rental to take place legally, it is necessary to notify the bank in advance and obtain consent.
However, even failure to comply with this rule rarely has negative consequences for the borrower. Banks are only interested in making payments on time and in full, and how they will be made by the borrower is the last thing the bank will be interested in. And an apartment can be a great way to solve your problems.
What's the best way to pay off your mortgage early?
Even with differential payments, there may be no real interest savings
If the mortgage agreement is concluded on the basis of differentiated payments, then it is better to draw up your own advanced payment schedule. For this:
- the family budget is calculated;
- the amount that can supplement the monthly mortgage payment without compromising the running of the household is determined;
- it is added to the established payment amount and paid regularly;
- The payment amount is periodically reconciled and adjusted as it will decrease;
- As soon as the debt reaches an amount that can be paid at one time, you should contact the bank, clarify the balance and pay off the mortgage in full.
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It is important to note that even with differential payments there may be no real interest savings. To check this, you should ask the bank for a payment schedule after making an additional loan payment. You need to pay attention to whether the amount of debt has changed, or only the amount of interest has decreased. If this is the case, the payment of additional funds on the mortgage should be accompanied by a request for recalculation from the bank, reducing the term of the mortgage.
For an annuity, the scheme will be different. Experts advise:
- accumulate a significant amount equal to several monthly payments;
- notify the bank about its deposit;
- repay part of the mortgage regularly with savings, followed by a revision of the payment schedule and a reduction in the payment period.
Using this scheme, you can pay the bank ahead of schedule. Sometimes early repayment of a mortgage is caused by the need to rid the collateral property of an encumbrance. The urgency of the process and the lack of a sufficient amount to fully pay off the loan is not a death sentence.
You can use:
- consumer lending;
- preferential programs (for example, contributing maternity capital to a mortgage);
- refinancing, in which you can benefit from a reduction in interest due to the fact that the mortgage will be calculated for a smaller amount;
- funds of the buyer if the apartment is supposed to be sold.
When choosing a mortgage payment method, you should be guided by how much the borrower can afford to contribute to the bank, in addition to existing contributions. In this case, it is necessary to calculate in advance the options for changing payment schedules and the final benefit from accelerating payments.
About the benefits of reducing the amount and term
Due to the contribution of additional funds that are not obligatory when repaying the loan, it becomes possible to review the existing payment schedule with changes to it. Thus, the loan term can be reduced while increasing regular payments, or monthly payments can be reduced while maintaining the existing loan term.
Let's compare the advantages and disadvantages of reducing the loan term and the amount of regular payments in the table.
| Possible change | Advantages | Flaws |
| Reducing the loan term | The amount of overpayment for using bank financing will decrease, the borrower will be able to quickly become a full owner of his own home. | The burden on the borrower's budget will increase due to the need to increase monthly payments. |
| Reduced monthly payments | The burden on the borrower's budget will be reduced. The funds freed up due to a reduction in mortgage servicing costs can continue to be deposited to speed up debt repayment. | A significant reduction in the amount of overpayment should not be expected. |
Is it possible to pay off a mortgage early?
The first thing you should do before paying off your mortgage early is to study your bank documents. It is not profitable for bankers if the borrower pays off the loan ahead of schedule. By approving a mortgage, the bank expects to receive a certain interest income, which is reduced if repaid early. Therefore, clauses are included in the documents that make it difficult for clients to make mortgage payments outside of the schedule.
The repayment process will be affected by:
- restrictions on the maximum and minimum payment amount;
- is there a period during which early repayment is not possible;
- the procedure for depositing money if the amount exceeds the established payment;
- commission for extraordinary contribution;
- other obligations of the borrower in case of early payment of the loan.
Respectable banks do not interfere with the early closure of a mortgage, prescribing only one condition - to warn about it in advance. It is important to know that bankers are prohibited by law from refusing borrowers to close a mortgage for any period (Article 810 of the Civil Code of the Russian Federation). If such a restriction is stated in the documents, you can write a claim to the bank and then go to court.
A look at paying off your mortgage early
There are three points of view on this process, so you should study the feasibility of this procedure, evaluate what the legislation says about this, and also take into account the opinion of the banking institution itself.
What the law says
Relatively recently, the possibility of early repayment was established by the banks themselves, so borrowers had to take into account the clauses that were in the loan agreement.
Important! Some banks previously completely prohibited depositing money ahead of schedule, while others charged significant interest for this process, so it was really unprofitable to use this opportunity.
With the introduction of Federal Law No. 284, borrowers have the opportunity to make additional loan payments at any time, so banks can no longer set any restrictions on this process.
How to pay a mortgage at Sberbank correctly? Watch the video:
Even if a corresponding clause is included in the agreement, on the basis of which the borrower should not pay money outside the payment schedule, it will be considered invalid, since it directly violates the terms of the law.
But even under such conditions, borrowers must notify the bank 30 days in advance that they will deposit funds ahead of schedule.
What do banks think about this?
Mortgage loans for each banking organization are considered quite profitable products, as they provide regular and high income.
Therefore, if borrowers begin to repay these loans with additional contributions, this leads to a decrease in bank profits.
Some banks even put people who prefer to repay various loans ahead of schedule on a special list, on the basis of which they do not offer them favorable lending conditions.
What common sense says
Every person who has obligations to any banking organization wants to fulfill them as quickly as possible.
But before depositing any amount of money, you need to consider some nuances:
- if there is an annuity payment system, then early repayment is considered not very appropriate, since a significant amount is initially paid in the form of interest, and not the principal debt;
- if the inflation rate in the country is high, then it makes no sense to pay the mortgage in advance, since the debt depreciates on its own;
- When repaying early, it is advisable to choose a reduction in the loan term rather than a monthly payment, since this choice ensures a reduction in the overpayment on the loan.
How to get a mortgage with bad credit history? See the link.
Important! Any borrower, before depositing any additional amount, must be aware of his income and family needs, since it is not advisable to withdraw a significant amount from the family budget, which will negatively affect the standard of living.
Is it worth paying off your mortgage early?
Some experts believe that premature closure of a mortgage is a necessary thing
Experts are divided on whether it is worth paying off the mortgage early. Some experts believe that premature closure of a mortgage is a necessary thing.
However, they explain it not so much by benefits as by the psychology of borrowers:
- forced monthly contributions are perceived as a burden and cause some stress;
- financial stability, which can be directly affected by the deterioration of the economic situation in the country (given the length of repayment periods, this factor is of particular concern);
- the fact that the mortgaged property does not belong entirely to the borrower, but is pledged to the bank.
All this motivates clients who have received a mortgage to repay the loan as quickly as possible. Other experts do not believe that early repayment of a mortgage is unprofitable:
- When a mortgage is taken out at a low or preferential interest rate, experts recommend paying off the loan on time. Otherwise, you may end up in a situation in which the money will be used to pay off a profitable mortgage, but will be needed for other expenses. The borrower will be forced to take out loans under consumer programs, where the conditions are not so good.
- It is important to remember that with any form of payment, interest is almost completely repaid in approximately the first half of the calculated period. Early repayment of a mortgage at the end of the term provides only moral satisfaction, but not material benefit.
- In addition, when deciding on early closure of a loan, it is worth paying attention to the dynamics of inflation and its forecasts. If the level is high, it is recommended not to rush into repaying long-term housing loans.
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Considering property values and mortgage rates over the past three years, it's safe to say that any prepayment is a heavy burden. Moreover, it exists in the present, forcing the borrower to send all funds to pay off the loan, postponing life until the time when the yoke can be thrown off.
Everyone must decide for themselves whether they should pay off their mortgage early and deny themselves comfortable living conditions now. Or pay an affordable payment, spending free funds on yourself and your family’s needs. The benefits of early repayment must be carefully calculated based on the financial situation, mortgage terms and real material savings.
Which banks allow you to pay off your mortgage early?
The number of banks in which advanced payments and full closure of a mortgage before the deadline is quite large. In the table you can compare the conditions:
| Documents for early payment | Limit on contribution amount | Restrictions on payment terms | Fees for payments outside the schedule | Fines | Procedure for depositing funds | |
| Sberbank | application with account number, amount deposited and date (one of the days of the working week) | No | No | No | No | does not change |
| VTB 24 | application one day before the expected date of making the additional payment | No | No | No | No | does not change |
| Rusfinance | advance notice 30 days before the next payment is possible by calling | Not | No | No | No | does not change |
| OTP | application for early deposit of funds at least one day before the next payment, on a working day | no less than monthly payment | No | No | No | does not change |
| Alfa Bank | notice at least three days before the due date of the monthly payment. | not less than 28 thousand rubles. | You can deposit money only after the notification has been agreed upon | No | No | does not change |
