Early repayment of a mortgage: conditions, documents

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

If you decide to repay the loan ahead of schedule, you need to familiarize yourself with all the details of the contract. Banks are unprofitable early repayment of mortgages. Therefore, they prescribe limiting conditions in the documents.

Essence

Paying off a loan early means that the loan is being repaid ahead of schedule. It is called complete if the client deposits the entire amount at once. Partial early repayment of a mortgage implies an increase in monthly payments by 2-3 times (depending on the terms of the agreement). In the second case, along with a decrease in debt, the payment schedule changes.

Schemes

The ability to pay off debt prematurely depends on the lending system: there are annuity or differentiated payments. If the debt is paid all the time in equal amounts, then the first few years, almost all funds are directed to the repayment of interest. This is how the bank maximizes its profits and minimizes risks.

More beneficial for the client is a scheme with differentiated payments. The first payments will be very large, since they consist of the loan body and interest, whichcharged on the balance. As the debt is repaid, the amount will gradually decrease.

Debtor's Benefit

The most attractive for the client is a differentiated scheme. The body and interest on the loan are paid in equal installments. It does not matter how many years (3, 5 or 10) the debtor wants to close the loan. He will just need to pay the rest of the amount.

The annuity scheme has fewer advantages. For the first few years, almost all funds are used to pay off interest. By the time the client decides to close the debt, he will have already paid such a commission that paying the rest of the amount right away will not save the family budget.

If the debtor still decides to early repay the mortgage (in Sberbank, for example), the credit institution will recalculate. Then there are two options:

• the client will retain the original term of the mortgage, but the monthly payments will decrease;
• the term of the contract will be reduced, and the amount of payments will remain the same.

Mortgage repayment calculator can be found on the website of any credit institution. With it, you can calculate the approximate amount of the payment and compare two lending schemes. But you can do the calculation yourself.

Example

The client wants to get a mortgage for 1 million rubles. for a period of 20 years (240 months) at 12% per annum. First, determine the amount of the monthly payment and interest.

According to a differentiated scheme:

1000: 240=4, 166 thousand rubles – loan body.

The interest is calculated by multiplying the balance by the annual rate and dividing the value by 12 months:

1000 x 0, 12: 12=10 thousand rubles. – percentage amount.

Thus, the amount of the standard monthly payment to will be:

4 166 + 10,000=14, 166 thousand rubles.

According to the annuity scheme:

1000 x (0.01 + (0.01: (1 + 0.01)240 -1))=11,011 thousand rubles. - the amount of the annuity payment, where:

• 0, 01=1:12;
• 240 - number of months of lending.

For comparison, let's calculate the percentage for the first payment:

1000 x 0, 12: 12=10 thousand rubles.

T. e. out of 11,011 thousand rubles. in the first month only 1,011 rubles. will be used to repay the body of the loan, and the rest - to interest.

In 10 years the client will pay the bank: 11,011 x 120=1321.32 thousand rubles.

After the same period, according to a differentiated scheme, the client will pay per month:

4, 166 + (1000 - (4, 166 x 120)) x 0, 12: 12=9, 167 thousand rubles

Early repayment of the mortgage, which used the scheme with differentiated payments, is beneficial only in the first half of the contract. Over the years, the amount of the payment decreases, most of the interest will have already been repaid.

Nuances

As practice shows, if a borrower expects early repayment of a mortgage, he should not only immediately choose a more profitable program, but also pay a large amount per month.

There is no benefit, only if the moneywhich the borrower plans to use for a loan, at the moment can bring more income when investing, for example, in deposits or other real estate. The deposit can become more profitable if the loan term is 25 years or more, as the monthly payment will decrease slowly.

Deposit procedure

After the borrower decides to early repay the mortgage in Sberbank, he needs to decide on the method of depositing funds. It is better to pay monthly tranches in a larger volume than to periodically deposit two or three times the amount. But, firstly, the client cannot always deposit funds in such a volume. Secondly, the banks themselves provided for restrictions. For example, they accept early repayment only on the day the funds are debited, they require you to first apply for a change in the scheme. If the borrower then changes his mind, he will have to pay a fine. Therefore, the solution to this issue depends on whether the client wants to write a monthly application, go to the bank for a new schedule, worry about unexpected expenses, etc.

Repaying the mortgage with maternity capital

The law provides for the use of mother capital for the acquisition or construction of real estate. Funds can be used to pay the down payment, principal or interest. For the borrower, the first scheme is the most disadvantageous. Firstly, not every bank accepts mother capital as an advance, and secondly, interest rates increase under such programs. Previously, it was believed that if the client did notcan independently make the first payment, which means that he is insolvent or unreliable. Today, banks make concessions, but additionally insure their risks.

Most often, public funds pay the principal amount of the debt. It makes sense to transfer money as interest if the payer does not plan to repay the loan ahead of schedule. In this case, he will pay a commission at the expense of mother capital, reducing the monthly tranche.

The following documents must be submitted to the bank to repay the mortgage:

• passport;
• certificate for receiving maternity capital;
• loan repayment application.

A bank employee will issue a certificate containing information on the remaining amount of debt and interest, a certificate of ownership.

The pension fund must give its approval for the repayment of the mortgage by maternity capital. To do this, you need to collect and provide the following package of documents:

• passport of a person en titled to receive public funds;
• certificate;
• documents confirming the obligation to repay the loan: a mortgage agreement and a certificate from the bank;
• certificate of ownership of the apartment, contract of sale;
• application to the Pension Fund about the borrower's desire to transfer funds to pay off the loan;
• other documents on request.

The PF employee must issue a receipt of receipt of documents and indicate the date of receipt in it. Within a month, a decision will be made on the payment of funds to the bank or on refusal.

Insurance

A prerequisite for a mortgage program is debt or property insurance, and sometimes both. After closing the loan ahead of time, the client has the right to demand compensation for part of the cost of services. The apartment insurance contract can also be terminated ahead of schedule (if this does not contradict the terms of the loan), by paying a large pen alty. Then the monthly payment will be reduced by the amount of the insurance.

Refinancing

The client can apply to another bank to renew the mortgage: change the method of payment, the duration of the program, the rate and other conditions. Changing the creditor does not mean the removal of the encumbrance. The apartment will still remain pledged, but already with another institution. Despite the obvious disadvantages (collection of a new package of documents, renewal of the contract, additional commissions), this method is appropriate if the client wants to change the loan repayment scheme to a more attractive one.