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.
Pros and cons of early repayment of a mortgage at Sberbank
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So, purchasing your own home is mostly a necessary measure, since every family wants to live in harmony, not depending on wishes of strangers.
A mortgage makes it possible to acquire your own home in a short time, but a potential borrower needs to take into account many nuances. Everyone strives to reduce their debts, which is why early repayment is a popular service.
The advantages and disadvantages of repaying a loan early largely depend on the chosen tariff plan and housing option.
The advantages are as follows.
- The borrower removes all obligations from the apartment ahead of schedule, becoming its full owner. After completing the loan obligations, the former borrower has the right to take any action with the apartment, even sell it.
- Early repayment of a loan from Sberbank also allows you to take out another loan if you need to expand your existing housing or the family plans to purchase another apartment. By getting rid of the credit burden ahead of time, the borrower opens up new opportunities for financial actions.
There are also disadvantages.
- Among the disadvantages of early payment is the overpayment, which, by the way, is specified in the contract.
- The disadvantages of early payment in most cases are associated with the inattention of the borrower. Since many people do not read the contract, which contains all the nuances.
- Early repayment may be unavailable to many borrowers due to their inability to plan their budget.
To prevent a mortgage from becoming a heavy burden for the family, lending experts advise you to first analyze your capabilities.
If you successfully plan your future and show care when drawing up the contract, you will not find any disadvantages in its further repayment in an early format.
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.
Payment Methods
Before filling out an application for early repayment of the loan, the borrower should ensure in advance that the planned amount to be paid is available in the account from which the mortgage fee is debited. You can apply for an operation as follows:
- At a bank branch. To carry out the operation, other than a passport and a loan agreement, no other documents are needed. The employee will print out the already completed application and the new payment schedule from the program; the client will only have to check his passport data, contribution amount, contract number and sign. The application will be executed on the day of application. If you contact the bank on a weekend or holiday, your application will be accepted, but it will be processed on the next working date.
- Through your profile in Sberbank Online. The instructions are quite simple - you need to click on the mortgage loan being repaid and select the “Early repayment” option. Next, you will need to indicate the debit amount and confirm the operation. Electronic applications are processed the next business day after registration - this must be taken into account when applying for RAP. There is also an online calculator with which you can calculate the expected payment amount after the operation.
You will find step-by-step instructions for paying a mortgage through Sberbank Online here. The updated payment schedule can also be viewed in your personal profile after the funds have been debited.
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.
How to quickly pay off a mortgage with your own funds?
If you have enough finances, pay off the remaining debt as quickly as possible. But you may have difficulty making additional payments to pay off your mortgage. Start by reviewing your credit obligations.
Depending on available finances:
- reduce the amount of debt,
- shorten the loan term.
The choice of the best option depends on the type of loan. If an annuity accrual scheme was applied, then payments occur in equal installments throughout the duration of the contract. If you take out a loan for 25 years, then in the first ten years you pay only the accrued interest.
The amount of debt remains virtually unchanged. When repaying a debt, interest is paid first. In this way, the bank is guaranteed to make a profit and protect itself from risks. It is not profitable for a person to pay amounts under this scheme ahead of schedule. This approach allows you to reduce the time frame, but it is not reflected in the amount of overpayments.
A differentiated scheme opens up more prospects. There are some features to this type of agreement. When you are at the beginning of receiving payments, the amount is quite large. The closer you get to the end, the less money you need to give. The amount consists of the bet and payments. Most of the payments you make each month are principal. Therefore, when choosing an option to pay off your mortgage faster, it is better to use this option.
With an annuity type in the first part of the mortgage term, there is no point in early settlement with the bank, since the total amount of debt will not change by this time. With a differentiated form, you will pay off the mortgage ahead of schedule at any time when money becomes available.
One of the main advantages of early repayment with your own money is the absence of additional operations and the need to fill out documents. The borrower simply continues to work with the same bank. Therefore, he will not need to pay additional funds, as when transferring rights to a loan to another financial institution.
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.
How to make an early payment at Sberbank?
Sberbank is one of the few banks that does not put any obstacles for the borrower to repay the debt ahead of schedule. But here it is necessary to take into account one very important point.
If you simply deposit more than your monthly payment into your account, it will not be credited automatically. The extra money will remain in the account until the next payment is debited.
In order for the company to take this receipt into account for early repayment, you must first visit a bank branch and write a corresponding application, here is a sample.
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.
Early repayment of a mortgage through Sberbank Online
Since we are talking about the method of self-service, let’s continue this topic. Many people are accustomed to performing even the simplest actions, such as paying bills, with the help of bank employees. But why waste time visiting the bank when you can do everything at home using a computer or tablet?
So, to repay a mortgage using Sberbank Online, you need to follow a certain sequence of actions, otherwise the payment will not be written off. If the borrower wants to repay the loan in full, then first he should find out the exact amount. To do this, you should call the bank or go in person to the nearest branch.
When repaying in full, it is very important to pay the remaining amount in full, otherwise, even on the balance of 1 ruble, interest will be charged, and in the future, a penalty. For the payment to go through, you need to deposit a sum of money into your account and submit an application to the bank or to the Sberbank portal using a computer.
The advantage of this method is that the borrower can make any number of early payments and for any amount.
Now banks are moving from cash to non-cash payment methods, so making payments is available in the following ways:
- on the bank’s website in your personal account as a non-cash transfer;
- through the nearest terminal or ATM;
- at the nearest bank branch with the help of its employees.
The early payment format is no different from the regular monthly payment. After closing the loan, you should visit the borrower’s account on the bank’s website and check whether the debt has been repaid.
When the loan is repaid in partial format, an updated schedule of subsequent payments will appear in the borrower’s account. When repaying in full, you should visit the bank and get a certificate, which will confirm the closure of the mortgage and the absence of debt.
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 |
