Mortgage amortization, as a rule, is a topic that raises some doubts that you should try to clarify, especially if you have a bank savings that do not offer a significant returnsince you run the risk of seeing the your money devaluemainly in periods when the inflation rate increases. So, instead of having your money stopped, you have the possibility to increase your financial liquidity with the amortization of the house loan. However, it is important to note that the savings you use to repay the mortgage it shouldn’t be your emergency fund🇧🇷 Otherwise, you are putting your financial stability at risk in the face of an unforeseen future. So, if you are considering amortizing the mortgage loan soon, know that there are some advantages in doing so. Next year, taking into account the Euribor rise, perhaps it is the right moment to amortize the housing loan if this decision do not jeopardize your family budget🇧🇷 In this article, find out what you get by paying off your home loan. Also read: Euribor rise: Money in the bank or paying off your home loan?
Payment of amortization commissions suspended in 2023
With the approval of the Decree-Law that regulates the renegotiation of mortgage loans, there are some measures that allow credit holders to more easily renegotiate the conditions of their contract. Although the main measures are associated with the increase in the effort rate with the increase in the Euribor, in 2023 there are news for those who want to amortize the mortgage loan.According to this Decree-Law the commission for early amortization in credit agreements with a variable rate is temporarily suspended (regardless of the amount of credit). In case you didn’t know, banks charge a commission for early repayment on home loans. By law, this commission cannot exceed:Although these commissions are the maximum limits that banks can practice – your contract may stipulate lower values - they keep many credit holders away from carrying out this operation🇧🇷 Thus, the Government intends to encourage the Portuguese who are suffering from the increases in the Euribor to proceed with the amortization of mortgage credit. 2023 could be the right period to make this decision. After all, even if the credit amortization is partial, it brings advantages, as you can see below.
Amortizing the mortgage loan allows you to reduce the amount of the installment
One of the great advantages when amortizing the mortgage loan is that you can reduce the amount of your monthly installment. This is because amortizing will not only reduce the amount of principal owed, but also the interest associated with your home loan. This is one of the preferences of credit holders in the face of a rise in interest rates, the effort rate or when they have a tighter family budget. Assuming that after the last review (if you have a contract linked to the Euribor rate) your TAN is currently at 3%. If you have a debt capital of 90,000 euros and there are still 180 outstanding installments to be paid (15 years), a amortization of 10,000 euros allows you to reduce your monthly installment from 621.52 euros to 552.47 euros. That is, a reduction of about 11%. This is because it goes from a monthly debt capital of 396.52 euros to € 352.47, and the monthly interest rate drops from 225 euros to 200 euros. If you have recently taken out a home loan, you may still have a high amount owed, such as 150,000 euros. If you have 30 years left to pay off your loan and you have a TAN of 3%, you would go from paying a 632.41 euros to 505.92 euros, if you amortize 30,000 euros. In other words, it would save 20%.
Mortgage amortization gives you the opportunity to anticipate the end of the contract
When thinking about amortizing mortgage loans, the most common objective tends to be the reduction of credit installments. However, early amortization has other advantages, namely the possibility of anticipate the end of your contract. In other words, pay off your home loan debt sooner. In these cases, what happens is that the installment value will remain equal. But the amount of early repayment will shorten the term of the contract. This is because the principal and the interest value decrease in the same way. However, instead of having an impact on the provision, it is reflected in the term of the contract. Depending on the amortization amount, you may be able to reduce the term of your loan by one or even several years. It all depends on the value in question. The higher the value, the greater the time reduction. On the other hand, if you make recurring amortizations with a significant amount, you will reach this objective even faster. advance total. At this stage, both the outstanding principal and the interest are usually low. Therefore, your savings can be more advantageously used in another product or other purpose. But everything will depend its need for momentary liquidity and its objectives.However, if you want to avoid paying the early repayment fee in 2023 (variable rate contract) and fully amortize your credit, it can also be beneficial for you. Given that this measure is transitory, this is a good chance to save 0.5% of the total amortization amount (early repayment fee).
Final credit amount can be cheaper
Finally, it is important to reinforce that by amortizing your mortgage loan you will reduce the MTIC (Total Amount Imputed to the Consumer). O MTIC corresponds to the total amount that each customer will pay to the bank during the entire loan period. Its calculation is based on the total amount of the credit, adding all its charges, such as interest, commissions, taxes and other bank expenses. When you amortize your home loan, regardless of whether the impact is applied to the installment or the term of the contract, will decrease the amount of outstanding principal and interest. And given that the total interest greatly influences the final price to be paid for your credit, amortization can save you thousands of euros. Of course, once again, it depends on the value of the amortization or if it is done on a recurring basis or not. For example, if you choose a partial amortization, but with a high amount, you will feel a strong impact in the reduction of your installment, interest drops significantly. Imagine you have a outstanding amount of 130,000 euros. if they miss settle 360 installmentsand currently have a TAN 3.5%, amortization and 30,000 euros allows you to do the following:Switch from a monthly installment of 583.76 euros pato 449.04 euros;The monthly debt capital increases from 204.59 euros to 157.38 euros;And the monthly interest drops from 379.17 euros to 291.67 euros.If the amortization is recurring, even with a smaller amount, the total interest goes down more and more, just like the principal owed. So, if you have some savings, calmly analyze the pros and cons of the type of amortization you intend to do. However, remember that the Amortization should never put your personal finances at risk.Also read: Housing credit: Effort rate greater than 36% will force renegotiation
A professional writer by day, a tech-nerd by night, with a love for all things money.