Mortgage lending is deservedis one of the most popular and sought-after types of banking services. This is explained by the convenience and profitability of such loans for the client. However, in some cases there is a need to urgently repay the mortgage. One of the options for the source of funds for this financial transaction may be to obtain a loan from a bank.
More about mortgage loans
Today, the Russian financial market offers various lending options. Considering the large number of previously issued loans and the serious problems of a significant proportion of borrowers that arose due to the unstable economic situation in the country, in recent years banking products have become popular, the funds of which are used for on-lending, including for mortgage repayment.
The need to urgently pay off mortgage debt may arise in various situations. Examples of the most typical of them are:
- The desire of the owner of an apartment purchased with a mortgage to sell it, for which it is necessary to first remove the encumbrance in the form of collateral;
- Changes in the financial capabilities of the borrower;
- The presence of part of the amount of debt to the bank. In this case, obtaining a loan will allow you to completely close the mortgage loan;
- The desire to purchase a new home by taking out a mortgage, for which the obligations on the old one should be removed, etc.
In the situations listed above and similar to them, an effective solution to help pay off a mortgage is to take out a regular consumer loan. To make such a decision, it is necessary to clearly understand the pros and cons of each type of loan under consideration.
Pros and cons of loans
There are a number of quite noticeable differences between a mortgage and a consumer loan. The most significant of them are the following:
- Availability of collateral. The key feature of a mortgage is the registration of the purchased or any other real estate as collateral. In consumer lending, such requirements are not imposed on the borrower.
- Sum. A mortgage is deservedly considered the largest type of loan that can be obtained by an individual. When applying for a consumer loan, there are strict restrictions on the size of the loan.
- Term. Mortgages are often issued for 10, 20 or even 30 years. Naturally, when receiving a consumer loan, we are usually talking about terms not exceeding 2-3 years.
- Interest rate. The above characteristic features of each loan explain why the mortgage interest rate is always noticeably lower than that of a consumer loan.
- Purpose of obtaining a loan. A mortgage loan is targeted, since its funds are used exclusively for the purchase of a specific property. When applying for a consumer loan, such restrictions, as a rule, are not established.
Given the presence of such a large list of differences, most of which demonstrate the obvious advantages and profitability of a mortgage loan for the borrower, the decision to take out a consumer loan to pay off a mortgage must be carefully weighed. It is advisable to use such a scheme for carrying out a financial transaction only as a last resort and if there are serious arguments in its favor.
In their absence, it is much more correct to consider the option of restructuring or refinancing the mortgage.
Where can I get a loan for a mortgage?
The high level of competition characteristic of the Russian financial market forces domestic banks to improve the conditions offered to clients. Therefore, it is not surprising that almost all large credit institutions include lending for mortgage repayment in their range of banking services. This can be either the issuance of a consumer loan or the refinancing of a mortgage previously taken from another bank. There are several options for such loans that are most popular on the market.
Sberbank
The leader of the Russian financial industry offers a large number of different types of lending. Among them, there are several loans, the funds of which can be used to pay off the mortgage, in particular:
- Loan refinancing. The maximum amount of Sberbank's offer is 3 million rubles at a rate of 11.5% and for a period not exceeding 7 years;
- Loan for any purpose. Its duration is 5 years, however, the amount reaches 5 million rubles at 11.9% per annum.
VTB
The VTB financial holding, which in 2018 united such large market participants as VTB Bank of Moscow and VTB-24, offers the following types of loans for mortgage repayment:
- Cash loan. The maximum loan amount is 3 million rubles, but can be increased to 5 million rubles for clients of VTB salary projects. In this case, the interest rate is 11.9%, and the loan term cannot exceed 7 years;
- Loan for refinancing. This loan option provides for the issuance of up to 5 million rubles for a period of up to 7 years at 12.5% per annum. For amounts up to 0.5 million rubles, the interest rate is set at 12.9% -16.9%.
Rosselkhozbank
One of the prominent participants in the country’s credit market offers a consumer loan for refinancing. The maximum amount of such a loan is 750 thousand rubles, for bank clients for salary and other projects - 1.5 million rubles, and if there are no delays during the year - 3 million rubles. The loan term is 5 years and can be increased to 7 for clients of a credit institution.
The interest rate is at a fairly low level and ranges from 10.5%.
Tinkoff Bank
The offer of one of the most famous banks in the country is to provide the opportunity to obtain a cash loan for any purpose, including repaying a mortgage, in the amount of up to 1 million rubles at 12% per annum. For Tinkoff Bank clients with an impeccable credit history, conditions can be revised for the better.
RaiffeisenBank
Currently the largest foreign bank operating in Russia offers a consumer loan for up to 5 years at 9.99%. In this case, the maximum loan amount is 2 million rubles. Completely similar conditions are offered for refinancing loans.
How do banks feel about such loans?
The bank's attitude towards a loan received to repay a mortgage is formed from several factors. Firstly, attracting a new client who has previously worked with another financial institution is an obvious plus. On the other hand, the desire to pay off a mortgage with a less profitable consumer loan raises quite obvious questions about the reasons for such a transaction.
Therefore, it is extremely important for the borrower to competently and clearly explain the purposes of the loan.
Probability of approval
The chances of being approved for a mortgage loan depend on a number of factors. The three most important of them are:
- Client's credit history;
- Availability of a stable income sufficient for trouble-free loan servicing;
- Clear reasons for the deal.
How to increase the likelihood of approval?
To increase your chances of getting a loan, you should do the following:
- Provide guarantors;
- Create liquid collateral;
- Become a client of the bank for some of its other projects, for example, payroll.
Other ways to pay off your mortgage quickly
In addition to taking out a consumer loan or a refinancing loan, there are several other ways to pay off a mortgage loan early. For example, maternity capital funds. They can be used to pay both the principal and interest on the debt.
The second option for the source of funds is receiving a tax deduction. Using an exemption is also an effective and legal way to get the money you need to pay off your mortgage.
How to quickly pay off a mortgage at Sberbank?
Sberbank, like any other domestic credit organization,does not have the right to prevent the client from wanting to repay the mortgage early. Moreover, the leader of the country’s financial sector provides several options for repaying borrowed funds, actively promoting its own refinancing program, which was described above.
In addition, the borrower today has the opportunity to return funds to Sberbank both directly to the cash desk of the credit institution, and using the remote service systems Sberbank Online and Mobile Bank, which is much simpler and more convenient. However, in any case, before you pay off your mortgage, you should definitely find out from the employees or on the bank’s website what documents need to be completed.
A significant purchase in any person’s life is the purchase of a home. This step is especially important for young families who have just entered adult independent life. Separate housing in this case will be the first step towards a long and happy family life.
Lucky are those who receive an apartment or their own house as a gift. But for most, this purchase is a personal matter. Unfortunately, not many salaries allow you to buy a home with cash. What should I do? In this case, the only option is to buy a home on credit. And here the question arises, which option is better: take out a consumer loan or get a mortgage for the desired square meters? Which is more profitable? Where will the overpayment be less, and the conditions for providing funds easier?
To make a choice, you need to understand these concepts.
Mortgage and consumer loans. Concepts and main differences
Mortgages and consumer loans are two different bank products. Both imply the issuance of funds to the borrower at interest. But the conditions for issuance are strikingly different.
Mortgage means a loan provided by a bank, secured by the purchased housing. What does this mean, the bank issues money, and the collateral is the very desired apartment.
Consumer loan is a loan provided by a bank for the personal needs of the borrower. It is important that it can be issued with collateral, even with an “apartment” collateral, but the borrower can spend the money on any of his needs.
Exist main differences:
Thus, it is clearly seen that taking out a mortgage to buy a home has more positive aspects than taking out a consumer loan.
The main advantages of these types of loans
There are many advantages of mortgages and consumer loans. What exactly to formalize is up to the borrower to decide for himself.
Eat a number of tips that will help you make your choice:
As you can see, in each specific case it is necessary to weigh the pros and cons. And only then contact the bank.
Comparison by main characteristics
Bank conditions
To obtain a mortgage, bank employees carefully check the borrower himself, and the object of the mortgage is also subject to a thorough check, i.e. the housing itself. The verification is significant in scope and therefore requires a lot of time. On average it takes 7-8 days. But, no less than 5 working days. The package of documents is appropriate: all documents confirming the borrower’s solvency, and all documents for the purchased housing.
In addition, it should be noted that the registration of collateral in the form of purchased housing is not “on parole”. The collection of loan documents must be registered with Rosreestr, and registration is also required. And all this means extra time and extra money.
Applying for a consumer loan is a little easier. Here, only documents are required that confirm the borrower’s solvency. Documents for the apartment are not needed even if the loan amount was issued specifically for this purpose. Review of the application varies within 1-2 days. And if the client receives a positive response regarding the possibility of registration, the procedure for receiving money may take no more than 20 minutes.
Interest rate
The interest rate, as already mentioned, on a mortgage is much lower. This is due to the presence of collateral against real estate. The bank's risks are reduced and, accordingly, the interest rate is reduced. On average it is 10-14% per annum.
The interest rate is significantly higher for a consumer loan. Although it should be noted that many banks can reduce it under certain conditions: the client has been receiving loans from this bank for a long time and has a positive credit history; the client is a “salary” client, and banks always provide bonuses to “their” clients as a reduced interest rate.
It is also important to mention one point: the total overpayment on a consumer loan is significantly lower than on a mortgage. So in the first case it is usually no more than 50%, and in the second - from 100% to 200%. This is due to the term of the loan: the longer the term, the greater the overpayment.
Additional expenses
TO additional expenses can be attributed:
- insurance. In the case of a mortgage, this is a mandatory item, without which approval will be something out of the realm of fantasy. Mandatory, which goes as collateral. It is important that when an insured event occurs, first the bank receives funds to compensate for losses, and only then to the borrower. And all this is spelled out in the insurance contract (Federal Law “On Mortgage (Pledge of Real Estate)”). Insurance when applying for a consumer loan is voluntary. And the object of insurance becomes the borrower himself, his life and health.
- independent housing assessment. These expenses when applying for a mortgage fall entirely on the shoulders of the borrower, and most importantly, these expenses are mandatory.
Is it possible to pay off a mortgage with a consumer loan and vice versa? Will it be profitable?
It is possible to repay a mortgage using funds borrowed from a consumer loan. But at the same time, the bank issuing a consumer loan must calculate the possible limit on the amount. The bank calls this process, which means refinancing one loan (mortgage) with another loan (consumer). In this case, the borrower must take into account all possible costs of obtaining a new loan. Whether it will be profitable and how much he will save if he closes the mortgage early must be calculated in each specific case separately.
In the case of closing a consumer loan with a mortgage, this is practically impossible. Why is that? When applying for a mortgage, a limit is calculated; if there are any debts, the bank requires you to pay them off, and only then apply again. Therefore, repaying a consumer loan with a mortgage is an unprofitable and almost unrealistic idea.
To summarize, we can say that there is no universal answer to the question “what is better: a mortgage or a consumer loan?” Each borrower decides for himself.
For information about the advantages and disadvantages of obtaining these types of loans, watch the following video:
Welcome! Today we’ll talk about how to quickly pay off your mortgage. Our experts have prepared for you two strategies on how to quickly pay off your mortgage, tips on how to quickly pay off your mortgage yourself and with the help of the state, as well as information on how to pay off your mortgage early.
In accordance with Russian legislation, each borrower has the legal right to repay his debt ahead of schedule. The conditions for repaying the loan ahead of schedule must be specified in the loan agreement. And before making such a payment, you should carefully study the previously signed document.
Collection of fines, commissions and other additional payments to the bank for early repayment of debt is illegal. There are two types of fulfillment of loan obligations before the specified period: partial and full. The first option involves making payments in an amount significantly exceeding its amount in accordance with the established schedule. The second is repaying the loan in full in one payment.
With a partial payment method, the borrower can use two strategies for settlement with the lender:
- By reducing the monthly payment amount
In this case, the loan term remains the same, only the monthly payment is reduced. It will be relevant for those borrowers for whom the credit burden puts a serious burden on the family budget. That is, with an easy monthly mortgage payment, debt repayment is made additionally through odd jobs, the use of maternity capital funds and other methods of state support, tax deductions, which allows you not to reduce your usual standard of living.
- By reducing the loan term
This strategy involves taking out a loan for a short period. As a result, the borrower receives a minimal overpayment when making significant amounts to pay off the debt. This method can be used by clients with a stable high income, which allows them to quickly pay off their loan agreement.
Which of the proposed options to choose must be decided by the borrower himself, taking into account the factors of his solvency, family circumstances and way of life. For individuals who are unsure of the long-term stability of receiving sufficient income, it is recommended to use the first strategy and reduce the size of the monthly payment while keeping the repayment period unchanged. For other citizens who are able to repay their mortgage early in large sums at once, it will be important to shorten the repayment period.
Of course, repaying the mortgage ahead of schedule is beneficial for the client, as it seriously reduces the overpayment or the amount of accrued interest. Therefore, if possible, it is better to repay the debt with the maximum possible amounts, if they do not entail a serious deterioration in the financial situation of the borrower.
Any early payment of a mortgage payment in an amount greater than the schedule must be agreed upon with the bank. To do this, you should contact the bank in advance by phone or in person to clarify the amount to be paid on a specific date and fill out an application for early repayment. After the money is credited to the loan account, the schedule will be revised in favor of the client, and the interest will be recalculated.
Two payment schemes
The type (scheme) of payments plays a major role in the early closure of a mortgage agreement. Banks can use 2 types of payments:
- annuity;
- differentiated.
With an annuity payment scheme, monthly payments are equal throughout the entire period of fulfillment of obligations. This scheme is beneficial, first of all, for banks, which is why most credit institutions use it. The structure of the annuity payment looks like this: most of the amount goes to repay accrued interest (80-90% of the total amount) and only a small part to repay the principal debt. Thus, the principal debt at the beginning of the repayment period is reduced only slightly.
An annuity allows the lender to minimize potential risks and maximize profits. For a borrower who wants to pay off his mortgage early, a payment schedule with equal amounts is not beneficial. The interest rates will be quite high at first. Such a loan must be repaid very quickly, and then, through the court, try to revise the amount of the overpayment from the actually paid period of using the borrowed funds, having previously calculated what the amount of the overpayment would be if you took out a mortgage for exactly this loan period, within which you were able to close the mortgage fully.
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It’s more profitable for conscientious borrowers who have available funds to find out.
But you should carefully study the conditions so as not to lose.
If you pay more than your monthly mortgage payment, what will happen?
Is it possible to pay off a mortgage early? Currently, many families use the services of financial institutions to improve their living conditions.
It is well known that a mortgage loan is issued for a long period, and the bank is not prohibited from making payments ahead of schedule.
First you need to carefully study the terms of the contract. In most cases, financial institutions allow early repayment of debt, but this must be specified in the relevant document.
Those who intend to prematurely pay a certain amount to pay off the debt on a mortgage loan should pay attention to the clauses of the agreement, which indicate:
- Is it necessary to notify bank employees before repaying an extraordinary payment;
- what commission is provided;
- payment period - there may be special days for making payments outside of the schedule;
- minimum and maximum contribution amount;
- bank branch where debt can be repaid.
Important! If the client does not pay attention to the repayment schedule and makes payments prematurely, this does not exempt him from paying the mandatory monthly installment.
The bank sets the repayment date for every 28th day of the month. The client makes an extraordinary payment on the 15th, and the amount of the contribution exceeds the amount of the mandatory monthly payment. Despite this, payment will have to be repeated on the 28th to avoid delays and not violate the terms of the contract.
A payment made not according to the schedule goes towards early repayment and reduces the total debt under the contract. Interest accrued on the debt amount is usually recalculated.
The repayment schedule is prepared in several ways:
- Annuity payment - the client pays in equal installments throughout the entire term of the contract. After paying the required monthly amount, the funds are distributed in this way: one part goes to repay the loan body (the principal amount of the debt), the other pays off the accrued interest.
- A differentiated repayment schedule is when the principal amount of the loan is divided into equal parts, and interest is charged on the balance of the debt, as in the annuity repayment schedule. This payment method is not entirely convenient, since the payment at the beginning of the term is quite large, but at the same time it benefits from the increase in price. If we compare the same conditions, then the first payment under a differentiated repayment schedule is on average 25% higher than the annuity.
Note! The repayment schedule with annuity payment is used most often by financial institutions.
There are two options for changing the schedule:
- shorten the term of the contract by increasing the payment or paying additional amounts;
- reduce the payment amount, but leave the repayment period unchanged.
Before reworking the debt repayment plan, it is necessary to determine which method is most beneficial for the borrower:
- some want to reduce the price increase;
- others want to reduce their monthly payment amount.
In what case is it beneficial to reduce the period?
Most often, those borrowers who took out a mortgage with an annuity repayment schedule reduce the loan term. Such people usually:
- they have funds, i.e. they can make payments in large sums, and they choose a long term as a “safety net”, you never know what will happen in life;
- want to reduce the amount of overpayment;
- have paid off more than half of the debt and are trying to get rid of the “credit ties” as quickly as possible.
The client pays a monthly amount greater than specified in the contract. The “extra” money covers part of the principal amount of the debt, while the amount of the required payment remains the same.
Let's look at an example
When the payment type is annuity.
During the specified period, you must pay at least 9,500 rubles monthly. If payment is made according to the schedule, the total overpayment will be 390,600 rubles.
The client makes the first payment in the amount of 30,000 rubles instead of the required 9,500 rubles. The client's decision is to reduce the duration of the contract. In this case:
- monthly payment remains the same 9,500 rubles;
- the amount of increase in price is reduced to 350,000 rubles, thereby saving a person 41,000 rubles over the entire period of the contract;
- The loan term will be reduced by 8 months.
After a few months, the client will deposit another 45,000 rubles, then:
- the payment remains unchanged;
- the overpayment under the contract will be 298,000 rubles;
- The contract will be valid for 102 months, not 120.
If the payer, from the moment of execution of the agreement, repays the loan according to the schedule, and three months later pays 75,000 rubles in one payment, then the payment amount, the amount of the increase in price and the term, as in previous cases, will not change.
Differentiated loan repayment schedule
From this we can conclude: in order to reduce the loan term and the size of the increase in price, it is not necessary to pay a huge amount one time; you can pay a little more (if possible) of the mandatory payment every month, and then the overpayment will decrease.
Let's consider the same loan terms, but with a differentiated payment schedule.
A differentiated repayment schedule implies a reduction in the amount of monthly payments.
The first payment must be at least 12,000 rubles. For comparison, the last payment is 6,300 rubles. Provided that the payment is made according to the schedule, the borrower overpays 340,500 rubles in total.
When a bank client makes the first payment of 30,000 rubles:
- the size of the first and last payment will not change - 12,000 and 6,300 rubles;
- the overpayment is reduced to 314,000 rubles, the payer saves 26,100 rubles;
- a person will repay the loan six months earlier.
If after two months another payment in the amount of 45,000 rubles is received, then:
- monthly payments are reduced according to the original repayment schedule, as in previous cases;
- the increase in price will be 278,000 rubles, the savings will be 62,200 rubles;
- The term of the loan agreement is 107 months.
When is it better to agree to a reduction in amount?
The borrower has the right to choose the option of early repayment by reducing the monthly payment. This method is convenient because if you deposit an amount greater than that specified in the schedule, the monthly payment is reduced, and the term of the contract remains unchanged.
Let's find out how it will be more profitable to pay off your mortgage early. To do this, let’s look at what happens to payments and price increases when the contract term remains unchanged and the monthly payment becomes smaller.
To make it easier to compare, we will leave the conditions unchanged (see table above):
If the client makes the first payment in the amount of 30,000 rubles
After two months the person pays 45,000 rubles
It should be noted that the monthly payment is reduced from the next month after payment of the specified amounts.
So, judging by the size of the increase in price, we can conclude: early repayment with a reduction in the amount is unprofitable.
But if the lender allows you to make larger payments an unlimited number of times, then you should consider this option. Especially when the repayment schedule is differentiated.
What is the best way to pay off a mortgage - by term or by amount?
It is impossible to give unambiguous advice to a person who is going to close a loan before the end of the contract.
It all depends on the situation in the family, material well-being and other factors. You can only consider different situations in order to be prepared for them.
Carefully study the terms of the mortgage agreement before signing. Still, there are isolated cases when a financial organization provides for the accrual of penalties and interest for attempting to close a loan before the specified period.
If the terms of the mortgage agreement allow early payment, you must:
- notify the bank about this;
- credit the funds you currently have to your account;
- check whether the debt amount has been recalculated, monitor changes in the payment schedule.
Think over the most optimal option for early payment, which is better to reduce: the term or the amount. Discuss the situation with family and friends, specialists in this field.
For example, a knowledgeable person will dissuade the borrower from closing the loan faster if the country has a high level of inflation. The reason is that money depreciates very quickly.
It is not economically profitable to allocate the lion's share of wages from the family and limit yourself in everything.
If a financial institution sets the number of payments that can be made out of turn, then it is much more profitable to change the schedule by reducing the term of the contract.
To choose an acceptable method of early repayment in the absence of restrictions on unscheduled payments, you must:
- take into account the financial capabilities of the payer;
- compare options for shortening the term and reducing the size of the payment.
There are situations when the borrower admits that his financial situation may worsen. But nowadays it is possible to deposit large amounts. In this case, it would be reasonable to reduce the monthly payment.
If you have a certain amount of funds, you need to think carefully about how to manage them. When the payer deposits money to pay off the debt under the agreement, access to it will be limited. Life is unpredictable; if you suddenly need a large amount of money urgently, there will be nowhere to get it from.
Content
If a house, apartment or other real estate is mortgaged, and funds can be allocated from the family budget to pay off part or all of the debt ahead of schedule, you should know how to do everything correctly so that the bank is satisfied with the cooperation and the person saves on interest payments. Recommendations on how to quickly pay off a mortgage loan that will be given will help you find, if necessary, a suitable way out of the current situation.
Is it possible to pay off a mortgage early?
The condition is regulated by the loan agreement. Most banks and financial institutions provide this opportunity. You can pay off your mortgage loan early in full or in installments without interest, commissions, penalties, quickly and with minimal costs. Some organizations have certain restrictions on the amount or other conditions. For example, the lender has the right to require the borrower to notify in writing or orally a few days before the end of the payment period that he plans to repay the mortgage ahead of schedule.
In any case, the conditions for changing the payment schedule in order to quickly close the mortgage are discussed individually before drawing up a loan agreement. It must clearly state the clauses regulating the procedure, process and possibility of repaying a mortgage loan ahead of schedule, the minimum and maximum monthly payment that the borrower has the right to pay additionally.
How to pay off your mortgage quickly
Early repayment of a mortgage loan guarantees a reduction in the amount of overpayment, saving your own funds and shortening the loan term. The faster the borrower can repay the debt, the less the overpayment will be. Most debtors take out a mortgage for up to 15, 20 or 30 years, but pay it off much faster. For those citizens who take into account various force majeure circumstances (reduced salaries, the emergence of new financial obligations and problems that need to be resolved quickly, unplanned purchases) - this is normal practice.
Early repayment of a mortgage loan can be full or partial. Full repayment means paying the entire amount of the debt at once. In case of partial repayment, the borrower, in addition to the obligatory monthly payment, contributes additional funds; their amount is not limited by specific requirements. You can quickly pay off your debt using maternity capital, insurance, personal funds, subsidies, etc.
In accordance with current legislation, citizens of the Russian Federation can partially or fully repay their loans. To do this, they must notify the bank of their intention 30 days (another period is specified in the agreement) before the planned repayment date. Interest is paid only for the actual period of use of borrowed funds. The application can be submitted orally or in writing, by telephone or online.
After partial repayment of the principal debt, the bank issues the borrower a new payment schedule, in accordance with which the monthly payment and interest are reduced. If the debtor managed to quickly repay the debt in full, then a document is issued indicating that the loan is closed. This certificate will protect you from possible problems in the future. It becomes proof that the debtor has fulfilled all obligations to the bank.
Reduced payment amount
One of the 8 effective ways to pay off your mortgage quickly is to lower your monthly loan payment. It is recommended to resort to it for borrowers who are not confident that they will always be able to collect the required amount on time to pay off the monthly installment. You can reduce the amount of payment under a mortgage loan agreement if:
- the borrower has a stable job, but wants to play it safe;
- there is no 100% confidence in your financial situation;
- the financial situation is unstable - earnings periodically fall and rise, the debtor can quickly earn a large monetary reward.
By reducing the amount of the contribution, the borrower will not significantly reduce the amount of overpayment, but will reduce the financial burden, protect himself from delays, since he will be able to pay the obligatory monthly contribution in any situation, and this is already an important and significant advantage. The loan term in the event of a reduction in the payment amount remains the same, as does the interest rate, debt repayment scheme, etc.
To reduce the size of the payment, it is required to periodically or constantly make an additional contribution in addition to the main monthly one. If the borrower has free money that will help quickly repay the loan, he must contact the bank or other financial institution and report his intention. You should always focus on the contract. It indicates all the nuances of the procedure. An equally effective way to resolve this issue is to consult with a bank employee: he will provide all the required information about the service.
Reducing the loan term
If it makes no sense to reduce the payment amount, then you can use another of the 8 ways to quickly pay off your mortgage. Experts recommend reducing the loan term in the following cases:
- when the borrower has a stable good income, of which he is 100% confident;
- when there is an opportunity to soon receive the necessary monetary compensation, which will completely cover the debt (a person has not yet managed to sell his old apartment, but cannot delay the move, he has to take out a mortgage loan, which he will immediately close when he sells his property).
In such cases, you can make an additional contribution to repay the loan without risk and significantly reduce the loan term. But do not forget that the material load should be feasible. The advantage of reducing the loan term is obvious. This method minimizes overpayment. Its disadvantage is that the monthly payments are unaffordable for most debtors.
Types of loan payments
Before taking out a mortgage, you have to consider many different nuances. One of the first is the type of loan installment chosen. It can be annuity and differentiated. Each of them has its own pros and cons, each type has a huge impact on the effectiveness of early repayment of the loan. Therefore, if you plan to close your mortgage ahead of schedule, then this nuance requires close attention.
The type of payment plays an important role in mortgage lending because:
- it determines the scheme by which interest will be calculated;
- it affects the size of the monthly contribution;
- It depends on it how the “body of the loan” will be distributed over its entire term.
If we talk about early repayment of a loan, then the situation is more complicated, and in order to understand which strategy is best to choose to repay the loan as quickly as possible, it is necessary to carry out individual calculations, taking into account the term, size of the loan, method of calculating interest, rate, financial capabilities of the borrower, etc. There is no single correct advice regarding which type of payment to choose. It all depends on the specific conditions and situation.
Annuity
This type of contribution involves dividing the principal debt and accrued interest into equal parts. In other words, the debtor must pay the same payment every month throughout the entire loan term. Typically, financial institutions provide clients with a schedule that specifies how annuity premiums will be paid. But if you wish, you can carry out all the calculations yourself.
The amount of monthly annuity mortgage payments is calculated using the formula - x = S * (P + (P/(1+P)N-1)), where x is the amount of the monthly payment, N is the loan term in months, P is the annual monthly interest rate bid. To calculate the interest component of the contribution in question, you need to multiply the loan balance for the specified period by the annual interest rate, and divide the resulting figure by 12 months.
The following formula is used - Pn = Sn * P / 12, where Sn is the remaining debt, Pn is the amount of accrued interest on the mortgage. That part of the monthly payment that will allow you to repay the principal debt on the mortgage is calculated using the formula - s = x - рn, where s is the required indicator, x is the amount of the monthly mortgage payment, рn is the interest established at the time of the nth payment.
To find out what part is spent on paying off the principal debt, the monthly payment is reduced by the accrued interest. Since the value of s depends on previous mortgage payments, it is calculated sequentially for each month, starting from the first. The accuracy of the resulting indicator depends on the accuracy of the calculations performed. A special loan calculator helps make the calculations easier.
An annuity implies payment at the initial stages of 80-90% of the accrued interest on the loan, only 10-20% of the total paid amount goes to pay off the principal debt. When choosing the loan repayment method in question, the debtor first pays interest, and only then the principal. According to experts, an annuity is beneficial first to the creditor, and only then to the debtor.
The advantages of the scheme under consideration are as follows:
- possibility of obtaining a larger loan;
- gentle burden on the debtor at the initial stages;
- convenience of loan repayment due to the fact that monthly payments are fixed, as a result, eliminating the possibility of accidental debt occurrence;
- convenient budget planning;
- longer loan term.
The disadvantages of the annuity scheme include a large overpayment and a constant amount of contributions paid throughout the entire mortgage repayment period. If we compare the annuity and the differentiated scheme, then we can say without making calculations that for the debtor who chose the first method of repaying the principal debt, the loan will cost more, since the loan body decreases more slowly, and interest is charged on it.
The debtor knows what payment he must make each month, plans his budget and anticipates all possible problems in advance in order to avoid penalties that a bank or other financial institution applies in case of late payment of the monthly installment. But it is much more convenient when the amount of mandatory payments on a mortgage loan gradually decreases.
The annuity scheme is beneficial primarily for creditors. They receive the maximum profit from the loan issued. At the first stages, the debtor mainly repays interest on the use of borrowed funds, as a result - a slow decrease in the amount of the principal debt and a more significant overpayment on the mortgage loan. To reduce it, there is only one way out - to exercise the right to full or partial early repayment of the debt. The debtor decides how to do this - by reducing the monthly payment or the loan term.
Differentiated
This method of repaying a mortgage is called commercial or classic. It provides for the accrual of interest on the balance of the debt. Translated from English, differentiate means to distinguish, to differentiate - and the size of each subsequent monthly mortgage payment is constantly different from the previous one. This method of repaying the loan obliges the debtor to pay the loan in equal parts and interest, which is accrued on the remaining amount; it decreases every month, which causes a decrease in their value.
Advantages of a differentiated way to pay off your mortgage:
- a small overpayment on the loan compared to an annuity due to the fact that the loan body gradually decreases, and along with it the amount of accrued interest;
- gradual reduction of the financial burden on the debtor by reducing monthly payments;
- a simple and understandable calculation principle that even a child can master.
The disadvantages of the differentiated method include:
- relatively high first payments;
- a smaller loan amount compared to the one that can be obtained by choosing an annuity;
- always different amounts of payments, the need for constant reconciliation with the payment schedule chosen by the bank or other financial institution.
This method of mortgage repayment is more beneficial for borrowers. Even if the first loan payments are significant, the overpayment compared to an annuity is 1.5-2 times less. A differentiated loan can be partially or fully repaid at any convenient time. The way to do this profitably and quickly is chosen by the debtor. Experts recommend resorting to shortening the loan term at the last stages of repayment of the mortgage, and reducing the amount of payments at first, in order to minimize the amount of the obligatory payment.
Conditions for early repayment of a mortgage loan
To pay off your mortgage quickly and profitably, you will need more than just additional financial resources. A person must know his rights and obligations, be legally savvy in matters, and be able, if necessary, to protect his interests in court. The conditions for early repayment of borrowed funds are specified in the loan agreement and may be different in each specific case.
According to the law, citizens of the Russian Federation can repay their mortgage loans in full or in part without any obstacles. To do this, you must notify the bank or other financial institution within the prescribed period. The borrower must also take into account the terms of the agreement concluded with the lender. It spells out all the nuances of premature repayment of borrowed funds:
- threshold (minimum) amount of early payment;
- the method and deadline for notifying a financial institution of its desire to quickly pay off the mortgage in full or reduce the amount of payments;
- the presence of commissions, fines, deductions, and other sanctions for recalculating the loan payment schedule.
The loan agreement may not include conditions for early repayment of the loan at all. In this case, the borrower should discuss this issue with the bank or other financial institution and document it in order to avoid problems in the future. If it becomes possible to quickly pay off the mortgage in the future, and the contract does not provide for an early repayment condition, the bank or organization has the right to refuse the client or demand an additional commission.
Borrower's procedure
To quickly pay off a mortgage loan, the debtor undertakes to:
- notify the financial institution of the intention to deposit additional funds (the expected amount of the contribution is indicated in the application);
- on a certain day, go to a financial institution to reissue documents and make payment in cash or by bank transfer;
- if the additional contribution helped pay off the entire remaining part of the debt, take a certificate stating that the mortgage loan agreement has been closed;
- draw up all documents in the relevant government authorities confirming the fact that the owner of the residential property is the borrower.
8 ways to pay off your mortgage faster
A loan is a significant financial burden, so every debtor tries in every possible way to get rid of it as quickly as possible. There are many ways to quickly pay off a debt to a bank or other institution - personal savings, maternity capital, tax deductions, refinancing, special social programs, increasing the frequency of payments, reducing credit card expenses in favor of loan repayments, subsidies.
Own funds and savings
One of the 8 ways to pay off your mortgage quickly is to use your personal savings. Its advantages:
- maximum reduction of the loan term, the ability to quickly relieve yourself of the financial burden;
- minimum overpayment on the loan;
- a quick opportunity to become the full owner of real estate purchased on credit.
The only drawback of this method is the need for strict budget planning. The debtor, by giving away his savings, is deprived of the only insurance that, if necessary, will help solve unexpected financial problems that arise.
Maternal capital
This method of paying off debt quickly is suitable for parents and guardians who have two or more children. They can receive monetary compensation in the form of a certificate for improving their living conditions; misuse of these funds is not allowed. A citizen who has the right to receive maternity capital applies to the Pension Fund and the bank. Institutions issue permission to use the certificate to repay a mortgage loan. The debtor gives the certificate and permission to the creditor. The amount of compensation is 400 thousand rubles.
Tax deduction
Holders of loans for the purchase of housing have the right to receive a tax deduction on the cost of real estate and interest paid to the financial institution. Its size is 13% of the amount of an apartment or house purchased on credit, but cannot exceed 2 million rubles. To receive monetary compensation, you need to contact the tax office or accounting department of the employing company.
Loan refinancing
If the borrower finds a more profitable program, he can exercise the right to refinance it - transfer it to another credit institution. Advantages of this method:
- significant savings;
- reducing the amount of overpayment;
- the ability to choose a more suitable loan program in order to improve conditions.
Transferring a mortgage loan from one organization to another involves the removal of all obligations of the debtor to the current creditor and the transfer of the collateral to the new institution. In this case, a new mortgage agreement is concluded, which specifies a completely different interest rate, scheme, loan term, possibility of debt restructuring, etc. Sberbank offers favorable mortgage lending conditions.
Increasing payment frequency
If you can allocate funds from your income to repay the loan early, you can deposit them several times a month. This will shorten the loan period and minimize overpayments. It is recommended to increase the frequency of payments when the borrower has additional income, when extra money appears as a result of the sale of personal property, etc.
Reducing credit card expenses to pay off mortgage debt
If a person uses a credit card with a certain limit, then these funds can be used to pay off the mortgage loan. This method does not require any additional investments on the part of the borrower, and significant savings on interest are possible. The credit card should be completely free, with no annual fees.
Subsidies under existing programs for certain categories of citizens
Young and large families, military personnel, disabled people, orphans, single mothers, doctors, scientists, teachers, civil servants, public sector employees, etc. can receive free material government assistance for partial repayment of a mortgage loan. Its value directly depends on the official income of the entire family. There are several subsidy programs. Each person chooses the appropriate option for himself.
Discuss8 ways to quickly pay off your mortgage - schemes and methods for repaying your loan early
