Ever we can find extra revenue, expected or unexpected (extra pay, a bonus, a prize, accumulated savings, etc..) And we used to alleviate some debt. Mortgage Credit For the highest burden of most families, it is normal to think of amortization of the capital owed.
But a question arises here. “I reduce monthly payments or time keeping the fee? Both cases are good for our economy, because in both situations will pay less interest, but … what is better to do? The answer is not as obvious as it seems. We will see a number of nuances that we consider.
Reduce the amount of your monthly mortgage
When we reduce the amount of monthly installments of our mortgage, we can say that our standard of living this, economically speaking, increases. That is, we have more money to spend today, but interest payments at the end of the loan will have been greater than if we keep the shares present but reduce the time we have to pay.
Then, the option of reducing the monthly is the best if we present something suffocated economically. If we have trouble making ends meet, with the repayment of the debt we pay less each maturity and thus be better off.
This option will probably be suggested by the Bank, since the longer the duration of the mortgage, the longer will be charged interest. For banks that they should therefore reduce fees but respect the time of mortgage.
Reduce the time of maturity of the mortgage
If, however, we do not have too many problems to deal with these payments and maintain a standard of living for our desires, it is best to keep mortgage payments current but reduce the duration of it (like you less, paying just the same each month before paying the debt).
This will mean less interest payable at the end that if we reduced the quota. That is, increase our future living standards, to be freed from our debt before.
This situation occurs when interest rates are higher than inflation (rising prices is called inflation). Historically, the medium and long term will always be so, and therefore more advisable to reduce the monthly term.
Moreover, in both cases must be taken into account will improve our financial situation, solvency winning: we have less debt (and therefore more ability to borrow if needed).
When making a mortgage prepayment
Another interesting consideration is that mortgage prepayments are more interesting as soon as possible are made on the life of the loan. Banks use the French system of depreciation, which is to repay the loan plus interest beginning in the end, when amortized capital and few interests. Therefore, as early redemptions serve to reduce interest, it is more them in the beginning when we are paying more interest.
But we must introduce two other nuances to take into account: the commissions that we pay for the cancellation and tax deductions for giving us the right to be subscribers of a mortgage.
Tax deduction for mortgage advance
And another important issue is the tax deduction. As the amounts paid for the acquisition of the property are deductible on income tax, the mortgage prepayments are also deductible. And if we reduce the time, we may deduct for fewer years, it will end before you pay the mortgage and then disappear our deduction.
Early repayment more tax benefits can bring us easily calculated. We will add all fees (principal plus interest) (the first year, we deduct all amounts paid by the purchase of the property: loan, notary fees, expenses of the Property Registration, fees, taxes, etc..) And amortize the rest up to the maximum deductible (there is a maximum amount you can deduct each year, regardless of whether they pay more).
If possible we will amortize 3000 euros in advance to maximize the tax benefits. An increased amount we should not be written off, because I would exceed the maximum deductible. We could invest it for income, and use it to repay back the following year.
In conclusion, we can say that if we are overwhelmed by our payments we should reduce our monthly fee. And if we are in a better position, because we should continue paying the same but for less time.