Why the early repayment of mortgage debt is not always profitable?

The early repayment of the mortgage has a lot of advantages, for example: a decrease in the term of the loan agreement, as well as the amount of overpayment of the bank, reduced the size of the monthly payment. But not in all cases, early repayment may result in benefits for the borrower.

In some situations, the early repayment of the mortgage loan is only to increase the debt load of the borrower. Consider situations when it is worth postponing the idea of early repayment.

By purchasing an apartment on credit, you conclude relevant contracts with the bank, as well as transfer the property to the bank. Consequently, the lender imposes restrictions on ownership and prohibits a borrower to sell, exchange or give housing.

Therefore, it is not surprising why the owners of the apartments are trying to get rid of debt issues as soon as possible. Early repayment can be an excellent tool that facilitates the debt load of the borrower.

Experts argue that early repayment at the beginning of the mortgage path is much more profitable than at the end. All because in the first years of mortgages in the monthly payment includes most of interest and less the most principal debt. Therefore, extinguishing a mortgage at the beginning, you will receive a recalculation of interest, which will reduce the amount of overpayment by the bank. But if you pay off early the mortgage at the end, then you will pay the main debt, and there is nothing to recalculate there. In this case, the overpaid interest is almost impossible.

The percentage of consumer loan is the procedure higher than with mortgage lending. Therefore, it is not worth counting on benefits by repayment of the mortgage consumer loan. In return, you will get a big overpayment and debt burden. Of course, plus this is also there — you can pick up the property from the bank’s deposit, and dispose of it as you wish.

The situation with a pandemic showed how important it is to have a seat in case of unforeseen circumstances, so it is worth it to think about the need for early repayment, if you assume problems at work or live from salary to salary. Money saved on the «black» day can benefit more than the early repayment of the mortgage, if the difference in the amount of overpayment is insignificant.

As you can see, early repayment has not only advantages, but also cons in separate situations. Experts note that early repayment of the mortgage on preferential conditions with a minimum interest rate should be thoroughly thoughtfully. Suddenly you have to take an urgent loan for other purposes, such as treatment. Then the percentage of consumer loan is much higher, which will be completely unfavorable for you.