A mortgage loan can be issued for 15–20, or even 30 years, depending on the conditions of different banks. The longer the term, the lower the monthly payment. But in the end, you will overpay more in interest. Therefore, many borrowers try to repay the loan ahead of schedule at the first opportunity: a bonus at work, a salary increase, receiving maternity capital or other social benefits, and so on.
The monthly payment amount for all loans should not exceed a certain percentage of family income. Usually it is 50%. Some banks may “allow” more. But here you should think carefully: will the remaining money be enough for a comfortable life for your family.
Some banks specifically recommend that clients take out mortgage loans for a maximum term of up to 25 years, but repay them early. “This allows you to get a comfortable monthly payment amount, and then make early repayments, reducing overpayments,” notes Svetlana Remenyuk, head of the Rosbank Dom Client and Partner Sales Center.
What options are there for early mortgage repayment?
As it turns out, paying off your mortgage early does not mean that if you bring one hundred thousand rubles to the cash desk of a financial institution, your debt will decrease by exactly that amount. Banks wouldn't be banks if they didn't try to make a profit out of your every move. Therefore, when you bring a certain amount to pay off a debt, only part of it (and not always the majority) goes towards these needs. An impressive amount can pay off the interest debt, for example. Or it is charged as a fee for using a loan, or something else that is completely legal, but terribly unpleasant for the borrower. Therefore, as soon as you come to your bank branch with such a request, the operator will offer you two ways to repay the loan early:
- With a reduction in payment terms. That is, by depositing the amount, you do not repay the loan body (this is the amount that you owe the bank without taking into account interest), but “cut off” the number of months that you must make payments. Thus, by regularly making contributions more than the established ones, you can completely repay the loan not in 15 years, but in 10. At the same time, the monthly payment amount will not change for the entire term of the loan agreement.
- With a decrease in the loan amount. In this case, everything acquired through back-breaking labor goes towards repaying the debt and interest on it (it varies from bank to bank, but on average the amount deposited is split in half for both of these purposes). By repaying the loan early in this way, you will also make monthly payments for the agreed fifteen years, but the amount will be less and less with each payment.
And how to choose? What are the advantages of each method? Nothing. One hundred and one early loan repayment calculators on the Internet show that no matter which scheme you choose, the savings (read: reduction in overpayments) will be the same. “Then what’s the point?” - the discouraged reader will exclaim. And the meaning depends on how confident you are in yourself and in the future, forgive the advertising. In other words, if your financial condition is rock-solid, you are an important employee, adored by your superiors, and you will not be fired from your position at any price. You can choose to reduce payment terms. Then you will quickly get rid of your debts without fear of worsening your financial situation.
If your well-being is like a circus stuntman who rides a circus unicycle on a high-tensioned rope and at the same time juggles monkeys (read - there is no confidence in the future), then it is best for you to repay the loan amount so that the monthly payment quickly decreases to the amount that you would be comfortable paying even with the loss of your job and financial well-being.
Tax deduction
Every citizen who buys an apartment (if he works and receives a “white” salary) has the right to a tax deduction. The maximum deduction amount is 260 thousand rubles. Plus, mortgage holders are entitled to a deduction on interest on a home loan. With the help of a tax deduction, you can partially repay part of the debt.
“The property deduction has no statute of limitations, but it can only be obtained within the last three years from the date of purchase of the property,” Rosenfeld emphasizes.
An application for a deduction must be submitted to the tax office (can be done online, in the taxpayer’s personal account). Here are the documents needed:
- certificate from the place of employment 2-NDFL for the period for which the tax deduction is issued;
- copies of documents confirming ownership of a house, apartment, land plot or share (purchase and sale agreement, participation in shared construction, etc.);
- a copy of the child’s birth certificate, if the property is acquired by a child under 18 years of age, and permission from the guardianship authorities;
- a copy of the marriage certificate and a document confirming the agreement of the owners, if the house or apartment was purchased as joint ownership;
- a copy of the mortgage agreement.
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Differentiated or annuity payments?
There's one more catch. Banks issue loans on different conditions. And depending on these conditions, the borrower is assigned monthly payments: annuity or differentiated. These are fundamentally different types of interest accrual, and accordingly, early repayment of each of them entails different benefits. To make the picture complete, let’s determine the materiel.
Annuity
– such payments in which the entire loan amount is added to the amount of interest, and the resulting value is evenly distributed over the entire loan period. This will be your monthly annuity payment.
Differentiated
(as is clear from the name) – payments that change over time. That is, the interest on the loan after each payment is recalculated based on how much you now owe the bank. Hypothetically. Overpayments for these types of loans are less, so this banking product is not widely used by financial institutions.
We will not bore you with lengthy calculations of hypothetical amounts with invented interest rates and imaginary volumes of early repayment - there is a lot of this stuff on the Internet. We immediately summarize what our colleagues were arriving at through pages of calculations: it is more profitable to repay an annuity payment ahead of schedule than a differentiated one.
Amount of credit
The larger the loan amount, the higher the monthly payment. Let's say you have 1 million rubles. and you need another 3 million rubles. for the purchase of an apartment with the condition of return within 10 years. In this case, according to the Sravni.ru mortgage calculator, the monthly payment at a rate of 12% per annum will be 43,049 rubles. If you increase the loan size to 4 million rubles, the payment will increase to 57,388 rubles.
Types of early mortgage repayment
And even here, as with everything else in the banking system, there are some nuances. You can repay the loan ahead of schedule in two possible ways: full and partial repayment of the mortgage.
Full repayment implies that the borrower somehow acquired a large amount and decided to use it to completely get rid of the debt. Partial repayment assumes that the borrower, over a certain period of time, can afford to allocate an amount greater than that provided for in the loan agreement to pay the mortgage. It is in this case that the borrower chooses how he will repay the debt: reduce the amount or term of payments.
By the way, a small note. Of course, when you pay off your mortgage early, somewhere in the world there is a little banker crying. But despite this, any fines, sanctions and bans on early repayment are a thing of the past. The law does not allow banks to limit the borrower’s right to repay the loan as he pleases. But in order to do at least something pleasant for the upset banker (however, in the context of the terms of the loan, this “at least something” sounds false), the law obliges the lender to warn the bank of his intention no less than 30 days before the proposed action.
Some banks, interested in their clients, have the right (and use this right) to develop their own rules for early repayment, but in the direction of respecting the interests of the borrower. For example, Sberbank has additional standards, according to which the client does not need to wait 30 days to write off the amount. Repayment occurs within a short period of time by agreement of the parties.
Algorithm of actions for early repayment of a loan
There is nothing complicated here, and in fact we presented this algorithm in the previous paragraph. Of course, a lot depends on the bank that issued you the loan. In most cases, you will need to contact the regional office of your bank with an application for early repayment of the loan. The application must indicate the date of the next payment in which you will increase the agreed contribution amount, and the actual amount that you want to write off in favor of closing the debt. This point is very important, since the card from which payments are written off may contain other person’s funds, and the system cannot (and should not) automatically write off everything that “sees” on the card in favor of the loan. The specified amount will clarify the process of repaying borrowed funds.
After considering the application (from several hours to 30 days), on day X the bank is obliged to transfer the amount specified in the application from the creditor’s account to its account. The whole point is that with your application you are not asking the bank for permission for early repayment, no. The statement is of a notification nature, so write-off will occur in any case. To ensure that the application does not get lost in the corridors of the bank, make it in two copies. Leave one copy at the bank office, and on the second, an authorized specialist will give you a receipt stamp with the registration number and date of acceptance of the application.
That's all. Repeat this action every month as many times as you think possible. In this case, partial early repayment may not be made monthly, but as the creditor has the opportunity to increase the contribution amount.
Discount when buying an apartment
Bargaining is an obvious tool for reducing the price of a resale property, but it is also suitable for a new building.
Developers also have discounts and promotions, for example, seasonal ones, when sales drop in the summer - potential buyers go to rest outside the city, to their dachas, or on vacation. In such cases, developers may offer discounts to attract buyers. Therefore, when planning to buy an apartment, be sure to check whether developers have discounts and promotions for apartments, and banks have discounts for mortgages.
Tips for choosing an apartment:
- If you are planning to buy a new building, it is better to purchase it at the excavation stage or at the very beginning of construction. The closer the house is delivered, the higher the price per square meter.
- Apartments on the first and last floors, not “view” apartments with windows to the courtyard or close to the elevator, and also side and corner apartments may cost less. If these are not important points for you, you can safely consider such options and ask the manager for a discount.
- If you have a limited budget and have another cheaper apartment in mind (it’s good if the developer’s competitors) - tell the manager about it. It is unlikely that he will want to give a hot client to a competitor - most likely, he will offer a discount himself.
- An apartment without finishing is obviously cheaper. However, when choosing this option, it is better to weigh everything and draw up at least a rough estimate in order to compare how much an apartment with finishing will cost, and how much will be spent on housing without finishing and independent repairs (not only money, but also nerves).
Early repayment using maternity capital
In light of the President’s latest speech, the number of families who can receive maternity capital after the birth of children will increase. According to the terms of the provision of family maternity capital, it can be used for early repayment of the mortgage in the entire amount at once, or to repay monthly loan payments from this amount.
In order to pay off a mortgage with maternity capital, the following actions are necessary:
- obtain from the Pension Fund (or with the help of the MFC) a certificate for the payment of family maternity capital;
- obtain a certificate from the bank about the availability of a mortgage loan and the terms of its payment - total amount, repayment schedule, loan term;
- provide this certificate to the Pension Fund of the Russian Federation at the place of residence along with the necessary package of documents (application for the disposal of maternity capital funds to repay the mortgage, passports of family members, loan agreement, title documents for the acquired property, SNILS, etc. upon request).
The Russian Pension Fund has 30 calendar days to consider your application. If a positive decision is made (and you will be notified of its decision in writing), the Pension Fund transfers the money to the bank account within a month. A month is the deadline; in fact, on average, seven to ten working days are enough for a transfer.
Final payment and certificate of no debt
Non-target mortgage loan from 10.15%
The loan is provided against existing real estate.
up to 65% of the value of existing real estate
For a period of up to 20 years
To learn more
Before making the final loan payment, you must request information about the amount of remaining debt from a bank employee. To do this, you can visit a bank office or call. It is believed that a more reliable option is to send an application for an extract, which will indicate the following data:
- Full name of the borrower;
- information about the status of the mortgage account;
- mortgage agreement number and closing date;
- Full name and position of the specialist who signed the certificate.
The statement must indicate that the credit institution has no claims against the client. You can receive a certificate within two weeks. An official document will protect the borrower and help prove the case in case of controversial situations.
Is it profitable to pay off your mortgage early?
Now let’s throw a seed of doubt into the fertile soil of readiness to direct all efforts to pay off the mortgage. In the conditions of the modern economy, is it so profitable and useful to end the loan before the due date?
The fact is that the mentality of our people is like this. We are afraid of loans and other “bondage” and most often, at the first opportunity, we try to give as much as possible to the bank in order to become free as soon as possible. And this feeling outweighs sound economic calculations. And the calculations tell us the following.
Despite the fact that the officially declared inflation rate in the country in 2021 was only 0.36%, virtually any money depreciates faster. These simple calculations make it clear to us that with further changes in the purchasing power of money, by repaying the mortgage as provided for in the schedule, you do not overpay, and even in some way save your money. Let us explain - in 2020, with a hypothetical 1000 rubles you can buy, say, an elephant. And by 2035, when your mortgage payments come to a logical conclusion, with the same thousand you will only be able to buy a mouse. So is it worth constantly denying yourself everything and giving the slightest savings to the bank? After all, today you are denying yourself elephants (read: trips, important acquisitions, new experiences, and life is short, just a minute). And after 15 years, your monthly payment will be calculated in mice.
If you are still uneasy because your life circumstances may change, the economic situation will worsen, you will lose your income, and with it your mortgaged apartment, there is a way out. We suggest you create your own emergency fund. You can use all your temporarily free funds not to pay off your mortgage, but to open a bank account and accumulate them. As long as the inflation rate has not yet exceeded the bank deposit rate, at least you will not be left at a loss. And in the event of force majeure, you will have a wonderful “safety cushion” that will allow you to calmly change jobs or somehow survive difficult times in your own apartment.
Vasilisa Ivanova
When the mortgage is at a low interest rate
As First Deputy General Director of the appraisal and expert company, professor at the National Research University MGSU, Doctor of Economics Kirill Kulakov says , early repayment of a housing loan may not be profitable if the mortgage was issued at a low interest rate. Now mortgage rates in our country are at a historic low; they have never been so low. In a new building, for example, you can buy an apartment on credit at a maximum of 6.5% per annum under the preferential mortgage program. And some developers additionally subsidize the reduction of rates to 2-3% per annum.
“Even now, with low rates on bank deposits and other financial instruments, there are options for investing funds at an interest rate greater than the interest rate on a mortgage loan. But over time, deposit rates may rise, and the mortgage interest rate is usually fixed for the entire term,” explains the expert.
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