Mortgage is a huge challenge for many people. We have to pay it a dozen or so years and it is a burden for the household budget. Therefore, the vast majority of us, when we have the opportunity of course, want to pay off this commitment as soon as possible. But can we do it? Will it pay off for us? We will try to analyze it later in the text.
How to pay off your mortgage earlier
All those who want to “get rid of” the mortgage before, can do it in two ways. First, they can pay off each month or from time to time more than it is clear from the repayment schedule. Thanks to this, we will finish paying off our debt earlier. Secondly, we can repay the entire debt in full. Usually, people who have received an “injection” of cash in the form of inheritance, donations, etc. As you can guess, the early repayment of the mortgage, in addition to “peace of mind”, also allows you to save a lot of money. We do not have to pay interest in the amount we see in the repayment schedule. However, with early repayment of such a loan, there may be a certain “catch”.
Well, banks can in this case charge a commission for early repayment. This applies in particular to loans made before July 22, 2017. All mortgage loans drawn after this date are subject to new regulations, which show that banks may only charge a loan early repayment fee if the repayment is made within the first three years of the loan agreement. This commission can amount to a maximum of 3% of the repaid amount and can not exceed the amount of interest that is charged on the repaid amount within one year of the actual repayment. Of course, not every bank collects such a commission, so it is worth to read such information in individual banks.
What we gain by paying back the mortgage
Early repayment of the mortgage gives us several benefits:
- We’re lowering the total cost of the loan,
- We improve our creditworthiness,
- We can release our mortgage,
- We can give up the package of other banking products that we often have to use when signing a loan agreement.
- We improve our well-being, because we do not think about our debt in our head.
As we can see, early repayment has many benefits. However, as finance specialists claim, it is not always profitable. We have already written about the costs associated with the commission for early repayment of the loan. In addition, we must realize that the mortgage is one of the cheapest on the market. Therefore, its costs compared to other loans are much lower. That is why it is often said that when we have any financial surpluses, it is better to accumulate them for a “rainy day” and not to pay for the repayment of a mortgage. For if we suddenly need more cash, and we do not have any savings, we will be forced to apply for a cash loan whose interest rate is much higher. Therefore, before we decide on such a solution, let’s think about whether it really pays to us, especially when we want to overpay the loan rather than pay it back.