Now probably almost the entire population of our country has a valid loan, and even more than one. And not a small part of them is a mortgage loan. Mortgage is quite a serious matter and you need to pay more than one year. But if you are not satisfied with this bondage for almost a lifetime, and you have thought about the tech, as it were, to quickly settle accounts with it, then this article is for you.
From the article you will learn:
- can and is it worth paying the mortgage loan ahead of schedule
- most preferred way to pay off a mortgage loan
- where to get the money for early repayment
- tips and recommendations for early repayment, how to pay off the mortgage
- what to do when the mortgage is repaid
Is it possible to pay off the mortgage ahead of schedule
All conditions for the early repayment of the mortgage must necessarily be spelled out in the contract. As a rule, all banks provide this opportunity to their borrowers. And if a few years ago, for early repayment, you would be charged penalties and fines, then now such “enslaving” conditions have sunk into oblivion. And if you decide to pay off your mortgage ahead of time: in whole or in part, you will not find any obstacles. For some banks, the minimum amount for early repayment generally begins with a symbolic 1 ruble.
Before paying off a mortgage, you need to determine 2 things for yourself:
- What is your type of loan (mortgage): annuity or differential payments?
- how much is early repayment allowed
Next, you need to notify the bank that you are going to make an early additional payment. This can be done in two ways. Or in the bank itself, writing a statement about the desire to make a payment. Or by calling the hotline (now almost all the largest banks have such an opportunity).
Important. Notify the bank you need at least one day before the onset of the period during which you are required to make money. Those. if you pay on the 10th of each month, then the application (or call) must be issued at least on the 9th. Otherwise, the money will be taken into account only in the next month.
Types of credit payments
There are 2 types of payments: annuity and differentiated.
Differential payment – the amount of debt is divided into the number of months for which the loan was taken. And of course, accrued interest on the balance of the debt. Disadvantages are the highest possible payments at the beginning of the term. But they gradually decrease with time as the principal is paid.
Example. If you took 1,200,000 rubles for 10 years at 12% per annum, then in the first month your payment will be 10,000 for the principal debt, plus interest on the remaining loan amount, namely 12,000 rubles. Total for the first month your payment will be 22 000 rubles.
Further, the amount will decrease in the last, 10th year, your payments will be only 11-12 thousand.
But lately, this type of payment is practically not found. This is due to the fact that for many, such a mortgage option is overwhelming, due to the huge payments in the initial period of the loan period.
Annuity payments. This type of loan implies a breakdown of the amount of debt and accrued interest in equal parts. Those. Every month you must pay the same amount, no matter how long you are: at the beginning, at the end, without a difference.
Annuity payments have only one positive point – you immediately understand how and how much you will pay during the whole period, and most importantly, in equal payments. Those. you know in advance how much of your income you will have to pay off your principal debt.
But at the same time, such payments, as compared with differential payments, are less beneficial to the borrower. The amount of the principal debt will decrease very slightly in the initial term. In the main payment, the share of accrued interest on the loan will reach 80-90%.
Example. 200,000 rubles for 15 years at 12% per annum. But unlike the first example, the payments will be annuity payments – equal for the whole term. The monthly payment will amount to 24 thousand, of which only 4 thousand will go towards repayment of the principal debt, and 20,000 thousand will be accrued interest.
With each payment, the share of principal will decrease slightly. For the 1st year with such a scheme, paying almost 300 thousand, you will reduce your debt by only 45 thousand. After the second year, the amount of your debt will decrease by 120,000 thousand, if you pay the bank 600,000 rubles, etc.
Where to get early repayment money
In order to pay off a mortgage loan more quickly, you need additional money, which you will have to pay in excess of the established payments. And then a reasonable question arises – where can we get money for these purposes? Below we consider the most realistic and effective options for obtaining money for these purposes.
Well, here everything is clear. Determine for yourself what part of your income you can allocate for such purposes. The main thing is not to overdo it with the size, so that the additional payments do not greatly affect your standard of living. The principle is such that the larger the amount you deposit, the faster you can pay off the loan and the lower the final overpayment will be.
But even if you can not allocate significant amounts, even very small additional contributions can save you a lot of money. Just an extra thousand rubles, but paid every month for a period of 5 years will help you pay a couple hundred thousand less. Only due to the fact that you will constantly decrease the amount of the principal debt and as a result the interest charged will be less.
If you are eligible for maternity capital, then you have a great opportunity to reduce your mortgage debt. All you need is to provide the mother certificate to the bank and it will automatically recalculate the principal debt.
When repaying a part of the loan by the parent capital, the bank reduces only the amount of monthly payments. Change the term of the loan in this case will not work.
At the moment, the amount of maternity capital for the birth of a second child is 453 thousand rubles.
All Russian citizens can receive a property tax deduction. The only condition – it can be obtained only once in a lifetime. You must also have an official income from which all taxes have been paid. As a matter of fact, a tax deduction is a refund of all taxes that have been withheld by the state for the previous period (year).
Example. If last year you were withheld taxes in the amount of 100 000 rubles. Then in the next, you are entitled to receive a tax deduction for exactly this amount. But if you worked informally, or did not work at all, then you will not receive money in the form of deductions. Also, this includes all categories of citizens who receive benefits, scholarships, pensions from the state.
Tax deduction is 13% of the amount of the purchase of real estate. But from the sum no more than 2 million rubles. Those. when buying an apartment worth 3 million, you have the right to receive 13%, but only with an amount of 2 million or 260 thousand.
You can also return 13% in the form of interest paid on the loan, but again within 2 million.
Example. If you have a loan for 1,000 million and for the whole period you pay interest on it in the amount of another 1 million, then you are entitled to receive 260 thousand in the form of tax deductions.
Refinancing a loan is another opportunity to reduce loan payments, or a term. If you have a current mortgage loan in one bank, then you can refinance in another bank under more favorable conditions.
The meaning of refinancing is as follows. The bank from which you want to refinance the loan buys back your debt from your first bank, i.e. extinguishes your credit in front of him. And in return, he gives you a new one, under his own, more favorable conditions.
Example. If you have a mortgage at 14% per annum, and in another bank you can take it at 12%, then it makes sense to consider this option. The difference of 2% is very significant. Of the amount of 2 million – this will be 40 000 rubles. This is a savings in just one year. And a few years? Again, several hundred thousand can be saved.
But before you run to do the refinancing, you need to carefully weigh everything. How profitable will it be for you? If you have a short time before the end of payments (a year or two), then probably there is no point. You will lose more time and money on loan reissuance.
But if you pay for many more years, then this option is fine.
When refinancing a loan, there is such a nuance that everybody forgets about, and as a result, it’s not even that they don’t win, but they even lose a lot of money.
When you refinance a loan, you lose the right to receive a tax deduction on all interest paid. Those. when the second bank extinguishes your mortgage debt, it is considered that you paid it back and, accordingly, you are not entitled to receive a deduction for a new (refinanced) loan (both for the main loan and for the interest charged).
How profitable to pay off the mortgage
Based on the types of your payments, it can be concluded that it is most profitable to pay off the mortgage ahead of schedule when you have annuity payments. Especially at the initial stage, when the amount of interest accounted for constitutes the lion’s share of your monthly payment. Although, by the way, early repayment is always profitable. The amount of the principal debt will decrease and the interest charged will be less, and accordingly your final overpayment will be less.
If you make additional funds ahead of schedule, in excess of the established amount of payment, you have 2 options, either to reduce the amount of subsequent payments, or to reduce the loan term. What to choose?
Of course, reducing the term of the loan is more preferable. The sooner you pay off the loan, the less time your interest will accrue to your bank. All this will positively affect the principal amount of the loan overpayment.
As mentioned above, especially at the beginning of the term. This can save a very significant amount. If we take the previous example (2 million for 15 years at 12%) and contribute 100,000 rubles at the beginning of the term, the total loan period will decrease by 2 years. During these 2 years you would have paid 580 thousand in the form of payments.
As a result, your savings on overpayment will be almost half a million !!!! And if during the whole period to make several such early payments? Your final loan overpayment can decrease by a seven-digit number !!!!
The second option for early repayment is to reduce the size of the payment. But this is not a very profitable option in terms of the final overpayment on the loan. It is most preferable for those families whose total income has fallen and it is difficult to pay the initial monthly payment and you need to try to reduce it by any means.
How to quickly pay off the mortgage – tips and tricks
In order to pay off the mortgage as soon as possible and to overpay less money in the form of constantly charged interest, you need the following:
- when making an early payment, we always reduce the time limit, since it is most beneficial for us
- It is not necessary to make large amounts of tens of thousands ahead of time. Even a couple of thousand paid in the form of an additional payment on a mortgage immediately save a fairly substantial amount in general. Therefore, it is much more profitable to pay extra even though a little, but every month, than once a year, but with a large amount.
- Do not forget on the tax deduction on the mortgage. Also use the received money in order to pay off the loan more quickly.
Council Submit your tax return immediately at the beginning of the year. So you quickly get the money that repay part of the debt. For example. If we make, say, 100,000 now or in half a year, then the total difference in overpayment at the initial term will be about 30-40 thousand. Just for the fact that you submit a declaration a little earlier. For several years, such efficiency can save you hundreds of thousands. Note that this does not require additional investments from you.
- if there is an opportunity to refinance a loan for more attractive terms, you should definitely consider this option. Even a 1% difference can save you tens of thousands of rubles.
After repayment of the mortgage
Well, that happy moment came when you made the last payment on your mortgage. What next? Mortgage repayment need to do the following:
- take a certificate from the bank on the absence of a mortgage loan. In other words, the fact that you fully paid off the loan
- refer this certificate to the registration chamber. Further, within a certain time (usually 1-2 weeks), and in some cases immediately, you will be removed from the burden on your property and will be given a new document confirming the ownership of your property.