Why long term mortgages are okay

2024 Author: Malcolm Clapton | [email protected]. Last modified: 2023-12-17 03:44

Less risks, more comfort, and inflation only suits you.

Why are we afraid of long-term mortgages

A mortgage is a long-term home loan. The minimum mortgage period in Russian banks is 1 year, the maximum is 30 years. Like any loan, a mortgage is an overpayment. The bank lends money and takes interest for it. The longer a person uses these funds, the more interest he pays. In the case of a mortgage, it turns out that we have been using the bank's money for 20-30 years, so the overpayment turns out to be catastrophic.

For example, let's take the amount of 2.4 million rubles. The interest rate is 9, 2%.

Mortgage term	5 years	10 years	15 years	20 years	25 years	30 years
Monthly payment, in rubles	50 054	30 663	24 629	21 904	20 471	19 658
The total cost of the loan, in rubles	3 003 240	3 679 560	4 433 220	5 256 960	6 141 300	7 076 880
Overpayment, in rubles	603 240	1 279 560	2 033 220	2 856 960	3 741 000	4 676 880

With a mortgage for 20 years, the payment will be 21,904 rubles, and the overpayment will be 2 million 856 thousand rubles, that is, more than the amount that we initially borrowed.

Substitute your numbers in the table to see how long it is best to take out the mortgage. You can calculate the amount of payments in any mortgage calculator - for example,.

In our case, the mortgage payment for 20 years differs from the payment calculated for 30 years by only 2,246 rubles, and the overpayment is more by 2,643,000 rubles. Over these 10 years, you will be giving away 264 thousand a year or 22 thousand a month - an unjustified price for the difference of 2,246 rubles.

Why is it not as scary as it seems?

At first glance, a long-term mortgage is bondage for life. For the sake of your own square meters, you need to deduct a significant part of your salary every month - and do this for 20-30 years. And as a result, the bank will receive two or three times more than it originally issued. However, if you look at it, it's not so scary.

You choose comfortable payments

Long-term mortgage allows you to keep your usual way of life and not switch to austerity. Due to the fact that you take a loan for 20-30 years, the monthly payment will not be very large. For residents of large cities, its amount will be even less than the cost of renting an apartment.

For example, you bought an apartment in a new building for 3 million rubles. The initial payment is 600 thousand, the rest was taken on a mortgage at 9, 2% per annum. If you take a loan for 10 years, then the payment will be 30,663 rubles, and if for 20 years - 21,904 rubles. It turns out almost 9 thousand less.

Reduces the risk of late payment

The most terrible question for those who take out a mortgage: "Will I have enough money to pay it off?" Many live in the hope that in a couple of months it will become easier, but the situation in the country is such that prices are rising, but salaries are not. And if today it is difficult to pay, then tomorrow it will be even more difficult. Therefore, if initially you are not sure that you will pull large payments, it is better to insure yourself.

With a mortgage for a long term, you do not risk that: 20 thousand is easier to pay than 30 thousand. In case of force majeure, it will be easier for you to find money.

And if the salary is still raised, the payment will strain even less. For example, you received 40 thousand rubles, and you paid 21 900 for a mortgage - more than half of your salary. A year later, you gained experience and began to receive 55 thousand, but the loan payment remained the same - 21 900 rubles.

You can pay off your mortgage ahead of schedule

The relatively small monthly payment leaves room for maneuver: when free money appears, you can pay off the mortgage ahead of schedule. For example, if you received a bonus, found a part-time job, or your salary was raised. Early payments are used to pay off the debt, and not interest on it, so you will pay off the loan faster and overpay the bank less.

There are two strategies for early repayment: reducing the maturity or the payment. In the first case, you will pay off the debt faster, in the second, you will pay less to the bank every month. It is impossible to say for sure which strategy is more profitable: you need to make calculations for a specific loan and see which option is preferable for you.

Let's see how the overpayment will decrease if we choose a strategy to reduce the term. Take, for example, the same 2.4 million rubles for 20 years. Here's what happens if you make early payments:

• One early payment. At the end of the year, you are given the thirteenth salary - 40 thousand rubles. You use this money to pay off your mortgage. Such a payment will save you 187 thousand overpayments and reduce the loan term by 11 months.
• 10 payments of 20 thousand for 5 years. From time to time you have free money. You make 10 early payments of 20 thousand rubles in the first 5 years of the mortgage. This will save you 635 thousand rubles and reduce the loan term by more than 3 years.
• 10 payments of 40 thousand for 10 years. For 10 years in a row, you have been investing your thirteenth salary - 40 thousand rubles - in early repayment. This will save 884 thousand rubles and reduce the loan term by 5 years.

You can calculate how much you will save on early repayments. Also, be sure to read our article on which strategy to choose in order to pay off a bank loan faster.

Inflation devalues your debt

Speaking about the huge overpayment, one should not forget about inflation - the depreciation of money. 20 years ago, a loaf of bread could be bought for 7. Average consumer prices for goods and services - the Federal State Statistics Service of rubles, now - for 27, and 10 years later - for a conditional 47 rubles.

There is nothing good in inflation, but in the case of a mortgage, it only plays into your hands: prices rise, salaries are indexed, your apartment becomes more expensive in the real estate market, and the mortgage payment does not change.

In 2029, you will repay the debt to the bank at the prices of 2019, even if this money is depreciated so much that it can only buy bread with it.

No one can say for sure what inflation will be in 5-10 years. From 2010 to 2018, it amounted to 64.3%. The inflation rate in the Russian Federation. If these rates continue, then in 10 years your apartment for 3 million will cost almost 5 million, in 15 years - 6, 6 million rubles, and in 20 years - more than 10 million.

And if the rate of inflation decreases, the Central Bank will become cheaper, it called the conditions for reducing the rate on mortgages to 8% and loans. In such a situation, you can refinance your mortgage - the bank will lower your interest rate.

Make sure in advance that there is no prohibition or penalty on refinancing in the mortgage agreement. Then you can easily switch to more favorable conditions if they appear.

David Sharkovsky Managing Director of the Russian branch of Financer.com

You can buy an apartment better and more

The bank is more likely to approve a mortgage for a long term than a short one. It is more profitable for him: you will give the loan longer and pay more interest. In addition, this is how the bank reinsures itself: it is easier for the borrower to repay small payments, which means there will be no delays.

With long-term lending, the bank is also likely to approve a larger loan. The explanation is simple: the size of the mortgage depends on the size of the payer's income. It is calculated so that the monthly payment does not exceed 40-60% of the total income. Accordingly, the longer the term of the mortgage and the smaller the amount of the payment, the larger the amount the bank will approve.

A long-term mortgage allows you to take out a large loan and buy an apartment with a larger area or in a more comfortable area.

Ivan Lonkin Head of Client Relations Department, SDM-Bank

For example, a family of two with an income of 150 thousand rubles a month can take out a mortgage for 5 years - the bank will approve them a loan in the amount of about 2.5 million rubles. If we consider a loan for the same family for 25 years, then the bank will already approve 6 million.