What is more profitable to pay off the mortgage ahead of schedule?

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

You can reduce the payment or the term of the loan. We analyze the advantages of each method.

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What is more profitable to pay off the mortgage ahead of schedule: with a decrease in the monthly payment or a decrease in the loan term?

Anonymous

Each of the mortgage repayment methods has its own advantages.

Reducing the loan term

This method is more profitable mathematically. Because by shortening the loan term, you reduce the amount of interest overpayment. Let's take an example. Let's imagine that:

• loan amount - 1 million rubles, rate - 15%;
• repayment period - 5 years;
• monthly payment - 23 790 rubles;
• we send 10,000 rubles for early repayment.

If the term is shortened, the loan will be repaid as early as the 37th month, and the overpayment will amount to 262,878 rubles.

And if you reduce the payment, then the loan will be paid in the 51st month, and the overpayment on it will be 311,054 rubles.

Decrease in payment

In this case, you reduce the monthly debt burden on yourself and increase your financial stability. So, if you lose your job for a couple of months, then finding 20,000 rubles to pay off the loan will be easier than 25,000 rubles.

When I paid off my mortgage, it was the monthly payment that I reduced. It is a very pleasant feeling when, after another early repayment, you receive a new payment schedule and you see how the payment has decreased.

In general, it is worth actively paying off your mortgage ahead of schedule if the monthly payment is onerous for your budget. In other cases, it is better to save and invest some of the free money.