Can a faster repayment of a home loan be a bad decision?

A mortgage or mortgage is usually one of the biggest credit obligations a person receives in his life and because of this size and long repayment schedule for these loans is usually also the most overpaid. Often the total overpayment to be made on this loan is up to 50% of the total fair value of the property, which means that if your apartment costs 20 thousand, you will pay the bank at least 30 thousand at the time of the loan repayment, which is 10 thousand more. than the fair value of the property.

Repayment of a home loan

Repayment of a home loan

So, precisely because of these costs, many people usually think about how it would be if they tried to repay the loan faster, whether it would affect the total amount of credit and whether such a financial decision would be economical, or would it be better to invest or invest somewhere else? So, from the very beginning, if you can’t repay the loan in one payment, then you will not save as much as you imagined as a percentage of the amount you usually pay for the repayment of the loan and only when the interest is repaid. you agreed with the bank, then the repayment of the principal amount starts and so the savings will not be so great. Of course, if you repay the loan in 10 years instead of 20 years, the total benefit could be close to 5,000 Euros if the total loan financing was 20,000. But if you repay the loan in 18 years instead of 20 then this benefit will be very minimal and most likely you will not even feel that you would have earned extra money and would not have given it to the bank.

That is why financial planners often recommend that people use this extra money for short-term loan repayments or savings. If the mortgage interest rate is, for example, 4%, but the rate of the fast loan is 100% then there is no option here and you definitely have to repay this short term loan much faster, because even though its amount is much smaller, you pay a lot more than the same time mortgage lender with this low interest rate. If you have no other credit, you should definitely think about making your own savings, because we all have different unexpected situations in life, and if there are no such savings, then new loans with much higher interest rates will have to be taken again. But if you have this reserve fund set up in sufficient size and then have more money left, then you can start paying off the mortgage faster, because in the long run you will save money even if you pay the highest amount each month that you lose money.

It is usually very difficult for people to understand that paying higher payments to the creditor now gives you much more money in the long run, as most of us see only short-term losses on their wallet and think that it is not worthwhile to repay the loan faster because you have less money now. But if we think a little deeper, then credit means that your money is actually in the minus and if you pay a higher monthly payment you will soon return to the positive value and you will save on high interest payments in the process.