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Amortizing on time will reduce the number of years left to pay off the debt; reducing the fee will alleviate the financial burden we pay month to month
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In a context of high interest rates, the decision is clear
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What mortgage are you most interested in having now?
A mortgage it’s a long term loan that those who buy a home use to finance the purchase, and thus avoid decapitalization. In essence, it works as a contract or ‘good debt’ between the borrower and the bank, where the former receives a significant sum of money and agrees to repay it in periodic installments over an agreed period, along with the corresponding interest.
It is common that throughout the years of paying monthly installments, mortgaged people have some extra money left and consider reducing the monthly payment by amortization of your loansomething that is not always an easy decision to make and usually comes with ‘fine print’.
Do I get rid of the payment or reduce the term on my mortgage?
It is important to study very well what our financial situation is and consult with an advisor who can coldly and objectively analyze what steps we should take. The two main ways to reduce the mortgage burden of the property we have acquired are: amortize in installmentreducing the amount we have to pay month by month, or the term to repay the debt.
It’s time to do the numbers before negotiating with the bank and carefully re-read the fine print of the contract to detect the commission that our lender takes for modifying the conditions of the loan. Let’s not forget that our bank does not want to lose its share of the pie.
It is very likely that a premium will apply to us to reduce our mortgage burden, since, in the long term, this means that we will spend fewer years paying religiously. In fixed mortgages, the law establishes a maximum of 2% in the first 10 years; 1.5% thereafter. In variable mortgages, a maximum of 0.25% in the first five years; 0.15% from the fifth year.
In essence, there are two scenarios that we have to consider.
- If we reduce the monthly amount, our payment will be lower, but not the interest savings. Furthermore, the deadline is maintained.
- If we shorten the years to return the money, we will continue paying the same monthly payment plus interest.
Except for very specific cases in which we have a certain need to reduce the monthly payment to alleviate our financial burden, The best option is usually to reduce the repayment period, especially if we can make the reduction in the first years of paying the loan. By mostly following the French amortization model, All the money we pay in the first years is used to pay interestand in a context of high interest rates where the variable rate mortgage is the norm and the Euribor gives no respite to families, we will be more interested in getting rid of this part of the debt that benefits the entity as soon as possible.
- We are in the fourth year of a variable mortgage of 250,000 euros
- TIN: 0,30%
- Euribor: 4.00%
- Applied interest: 4.3%
- Monthly fee that we have to pay: 1,237.18 euros.
Let’s say we have 50,000 extra euros to carry out a partial amortization.
- If we chose the reduction of the monthly payment, we would pay 1022 euros per month for 26 years. A reduction of the quota of 255,55 euros.
- If we chose the amortization of the termwe would only be left 18 years and three months of mortgageand we would have saved a total of 68.426,21 euros as interest.
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2024-02-15 04:09:14
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