Do you need to pay off a mortgage early and don't know how? In today's article we will propose several valid approaches to repay a mortgage early. We will also explain what is more profitable, whether to reduce years of mortgage or reduce capital. We will see several options or valid solutions for our approaches:
Find the best mortgage without mistakes
Going from bank to bank is a thing of the past.
GET INFORMED FOR FREE
To simplify it, we will work on an example with which we will study the options Romania Mobile Number List of canceling early a mortgage of €200,000 over 30 years with a fixed interest of 2.4%* . The commissions generated by this 2.45% 30-year fixed rate mortgage amount to €80,757.78, and involve an annual fee of €9,358.56.
*All savings resulting from the partial cancellations shown are based on the assumption that the bank does not apply fees for these types of cancellations.
Recommended reading: 3 keys to mortgage loan amortization in 2022
How to amortize a mortgage
Option 1: Substantial contribution
This option is the most appropriate when we suddenly receive, for example, 30,000 because we won the lottery or we inherited an inheritance or whatever.
In this case we will have two options:
Reduce capital
If the initial loan was €200,000 and we subtract €30,000, the interest and years will be the same, however, the monthly payment will decrease. This will allow us to have a more comfortable installment and a greater savings capacity.
We will first see, for example, the amortization of €30,000 of capital in year 15, of the example. In this case, €140,378.89 would remain to be amortized. This outstanding capital is the difference between the initial capital including interest, €280,757.78, and the amount already settled, which in this case would be € 82,209.32 + €58,169.57 . By subtracting the €30,000, a capital of €110,378.89 would be outstanding.
The annual interest and the years outstanding are the same, however, the fee will decrease. This will allow us to have a more comfortable installment and greater savings capacity (50 euros/month), resulting in a saving of €1,421.33 in bank fees or the equivalent of reducing the duration of the mortgage by 3 years . If we combine this “ option with option 3”, we will obtain greater profitability and savings on our mortgage.
Cancel years
On the other hand, if we had chosen the option of canceling years, we would save €459.92 and shorten the duration of the mortgage by 2 years .
amortize a mortgage
Amortization of a mortgage of €200,000 over 30 years with an interest of 2.45% at a fixed rate. Years 1-15.
If you look at this mortgage amortization table , the first thing you pay is always interest and not principal . When you choose to amortize capital, what you do is subtract money from the principal, without paying interest. This means that you end up paying less for the loan.
But what would happen if we did not have those €30,000, if we did not win the lottery, or if we did not access any inheritance? For that, we have the following two options:
Recommended reading: Learn all the keys to selling your apartment
Option 2: amortize up to €9,040 for the tax advantages of mortgages prior to 2013
It should be clarified that only those who bought their home in 2013 or in previous years will be able to benefit from this tax advantage. Homes acquired in subsequent years can no longer be deducted in the income tax return.
The calculation of the tax deduction for habitual residence is simple. You only have to add the annual fee paid for the mortgage and the life or home insurance money if this was signed with the loan and as a condition to achieve financing. 15% can be deducted from this sum with a maximum base of 9,040 euros , which leaves the maximum deduction in personal income tax at 1,356 euros. This is the amount that, at most, you will be able to save on your tax return if you have contributed the maximum to your mortgage.
In married couples with a mortgage who choose to file individually instead of jointly, each of the spouses may deduct up to 1,356 euros , provided that each also reaches the maximum contribution. These benefits can help pay off a mortgage in less time.