If you are paying a mortgage or are going to apply for one, this article interests you. And is that today, we are going to analyze what compensates more, amortize a mortgage installment or term.
In addition, we are going to analyze it from various points of view , from the economic point of view and from a period of time such as the monthly installments.
Amortizing the mortgage payment or term: what is more profitable?
Money is a limited resource that you have to know how to manage to get the most out of it.
However, it is more difficult for some people, especially for all those who have to face a mortgage every month.
And, as you well know, banks do not forgive anyone and we must face this payment if we do not want to lose our property .
The bad thing is that unless we have a good job or economic situation, facing a monthly amount equivalent or similar to the payment of a rent reduces our economic possibilities.
Therefore, if you have money saved and you want to face the mortgage, you should ask yourself if it is more rewarding to face the payment of a few months or directly pay part of the fee you pay each month.
Profitability and efficiency
Before answering the question, let us ask yourself this question: what is profitable for you?
Think that your situation is not the same as that of the rest of the people and depending on factors such as the total payment of your mortgage, the time you have left to pay it, your financial situation and the terms to pay the final result will be different.
Therefore, you must discover which option is the best one. As a general rule, meeting the term of a mortgage is more convenient economically than lowering the fee. You can avail Apartments & Flats for Sale in Business Bay for better experience. Contact Zoomproperty and avail this opportunity now.
The reason is simple, you save more interest since by reducing the repayment time, the loan can be repaid in a shorter period of time and with this you avoid paying less interest, so the savings are higher.
But this response in turn is variable, this is due to the fact that in dubai most of the banking entities use the French settlement system.
This means that you have to choose well when and how to make the partial amortization of the mortgage since most of these bank loans tend to pay more interest in the first period or half of the term.
In other words, if we want to pay off the mortgage and it has a French settlement system, it pays us more to pay it off during the first years of it.
On the other hand, if you have another form of settlement, it will not matter that we take longer as it will compensate us to do it later by not affecting us so much in the payment of interest.
Total or partial amortization of the mortgage
Regardless of the payment of interest, we must ask ourselves if we are interested in paying off in full, lucky those, or if it compensates us to do it partially.
We tell you this because if you want to completely pay off your mortgage you have other good news, you can still access a tax reduction.
Of course, it is not for everyone. If you just applied for the mortgage a couple of years ago, you cannot benefit from this tax reduction .
On the other hand, if you have contracted this banking product before 2013 you will be able to apply a deduction for investment in habitual residence on the amortized amount.
This means that in the best of cases you can get to deduct up to 15 for the amount paid per year for the loan with the sum of the capital advances and the payment of the installments.
Example and real case
In the event that you have not understood whether or not it compensates you to face the mortgage payment in the form of installments or reduce the fee, we are going to give you an example, so you will understand it perfectly.
Taking into account that the average mortgage payment in Dubai is approximately 597 euros each month, and assuming a 25-year settlement period, we have a total payment of 179,100 euros.
To find out what is best for us, we are going to do a simulation.
But first, remember that each case is different and you should ask yourself these questions:
- Is it new or second-hand housing ?
- How old are you
- How much do you earn or do you earn per month ?
- Where is the house located ?
- How many holders will the loan have?
- And finally, the most important question: How much money do you want to return?
- All these variables influence the payment of the mortgage and therefore its repayment.
So if you want to lower a fee, it is not the same if you live in A Coruña than in Huelva or if you are two owners and earn 1,200 euros per month, for example.
Simulator of partial amortization of a mortgage
Now we go to the real case, assuming you are 45 years old, live in Cádiz, have a salary of 1,200 euros per month, the average price of your home is 150,000 euros , you are two or more owners and the payment is a new construction property of the 30-year mortgage you have about 442.94 euros per month at 30 years.
In total, it would be about 160,294 euros to be returned in 30 years with a Euribor of 1.91%, a variable APR of 2.01%, and a 10-year TIN of 1.99 or 2.39%, depending on the chosen formula .
Assuming that you make a payment each month of 442.94 euros each month and have paid 5 years (about 26,575 euros) and you want to return 5,300 euros (a whole year of mortgage) you have two options:
- Lower the time period:
And so you would have to pay 461.44 euros, yes, you have 260 months to pay.
- Or lower the fee:
In this case, you would have a monthly payment of 439, 20 euros per month and a repayment period of 300 months.
In the first case, we can save about 1,400 euros, on the other hand, in the second case we will save about 650 euros. All this, assuming you do it after signing and amortizing 5,000 euros from 150,000 to 25 years.
Be careful, amortizing has expenses, or not.
Finally, you must check if the return has expenses .
That is, check the commission for paying off the mortgage in advance, this is because the banks will enter less money than the total when facing it before.
Important note : remember that some banks charge you a percentage of commissions when returning the money both in full and in part, on the other hand, some banks such as ING, BBVA, Bankia or Abanca charge you zero commissions.