How to shorten your mortgage loan by more than a year
The mortgage market is undergoing a tense moment. As interest rates reach new highs and families reassess their loans, real estate professionals are Javier Solis explained how deferring some of your loan payments can be one of the best financial decisions you can make. The advisor shared on his social networks a simple formula that many people are unaware of.
Solis raises the following situation: If a customer pays three additional monthly payments during the first year of the loan, the impact on term can be surprising. “If you pay three more monthly payments in the 12th month, you’ll have 20 months of loan forgiveness. That’s actually 17 months of savings,” the expert summarizes. Solis Real Estate Management.
Why payment timing makes a difference
All mortgages start with a balance. The faster you reduce the amount, the less interest you will accrue. That’s the reason, Amortize over the first few years It has a much bigger impact than doing so at the end of the loan. Solis explains: “The sooner the capital is disbursed, the greater the impact. For this very reason, the lower the mortgage balance with the bank, the less interest will accrue.”
This effect is due to the nature of the French amortization system used by most companies. For the first few years, most of each installment goes toward interest rather than principal. If you pay in advance, the total payment amount will be significantly reduced.
Shorten duration or cut allocations: a key decision
One of the most common questions is whether it is more appropriate. Reduce your term or monthly payments. According to Solis, the answer depends on the client’s priorities. “If you’re asking where you can pay less, the answer is to reduce the term. You’ll pay much less in total. But if you’re looking for comfort and a monthly payment, then reduce the monthly payment,” he says.
Substantial savings by shortening your loan
Shortening the term not only speeds up debt forgiveness, but also reduces interest costs. If you remove a number of months from the term of your loan, the bank will stop applying interest for that period. On the other hand, even if the fees are lowered, the term remains the same and interest continues to accrue, so the total amount remains almost the same.
Financial experts have calculated that a loan of 200,000 euros over 25 years could result in more than 80,000 euros in interest. Partial amortization over the first few years can reduce that cost by up to 15%. That means you save more than 12,000 euros.
Contents stipulated by law regarding early repayments
Law 5/2019 of March 15 regulating real estate credit contracts allows: early repayment Most mortgages are either partial or full. However, each entity may have specific terms and conditions, such as early cancellation fees and minimum dollar limits.
Tips before repayment
- Check the terms of your mortgage contract to find out if there are any fees.
- Check to see if your organization allows you to choose between a reduced rate or a longer period.
- Request a simulation of your total savings before paying.
- Prioritize repayment during the first few years of the loan.
Economist’s view
economist Lorena Alvarez Solís agrees that most banks want their customers to pay fewer fees. This will help maintain interest rates for a long period of time. “Companies know that when customers shorten their time horizon, their profits decrease, so they typically recommend the least favorable option for consumers,” he warns.
Alvarez remembers that each financial situation is different. For those who have liquidity and want to minimize debt, shortening the term is the most efficient strategy. On the other hand, for families with fluctuating incomes, it may be wiser to keep your payments low to maintain your monthly finances.
Impact of ECB decision
The monetary policy of E.C.B. It also affects your mortgage strategy. With interest rates stagnant and inflation moderating, some experts are predicting a gradual decline in interest rates in the coming quarters. This could facilitate new amortization or renegotiation of fixed-rate mortgages.
However, as long as costs remain high, the following are generally recommended: depreciate early as much as possible. Doing so will not only reduce interest costs, but also increase your household’s sense of financial security.
Javier Solis conclusion
The key for real estate advisors is to act quickly. “It’s not about making more money, it’s about making better use of your money. Three extra payments a year can eliminate almost two years of mortgage debt.” It’s a simple strategy, but it has a noticeable impact on the nation’s finances.
The lesson is clear. Making prepayments at the beginning of your loan can be the difference between paying off your mortgage in 25 years or paying it off in just over 23 years. And all with the same monthly payment.
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