When it comes to the repayment of a mortgage loan, you often have several different options to weigh between. These can be anything from not repaying at all to repaying at a fast pace or even repaying the entire loan at one time if you wish. What options you have are partly determined by your lender’s wishes, your wishes and how your finances look.
What we take up here is the mortgage loan, which is the largest part of the mortgage and also where the housing stands as collateral. The repayment for a top loan follows other rules, which means, for example, that it should normally be repaid much faster than the bottom loan.
If you have a strong economy, it will probably not be a problem to repay the loan for a long time if you so wish. This is because the lender makes more money on you the bigger the loan you have with them and the longer it takes for you to repay it. If they see that you are in a good financial situation, this is a good solution for them.
If you are not in an equally strong position, it is possible that the lender wants you to pay a little more to show that you can pay off your loan. However, you never have to worry about having to pay back a mortgage in a very short time. This would simply not work as the monthly cost would be far too high. An ordinary mortgage usually has a repayment period of 30 – 50 years, sometimes it can be longer than that.
Furthermore, the lender may, of course, have other wishes which are governed by the practice used within that particular company.
Mortgages that exceed 70% of the value of the home must be repaid
Much has been discussed about how to reduce the risks of private individuals’ debt and one problem has been that people are too poor at repaying their mortgages. For this reason it was said quite recently that rules should be introduced that say that as long as your mortgage exceeds 70% of the value of the home, you have to repay.
You will then normally maintain a reasonably good repayment rate and the banks may, for example, require you to constantly repay amounts over 70% for a period of at most 15 years. At the time of writing, these rules are not fully established and are expected to come in the future. Many banks have already started printing their own requirements in preparation for this, but some are choosing to wait.
Please check out what the bank you choose has for amortization rules. However, it is recommended that you always pay off your mortgage. Not making any installments means that you only pay interest on the loan, but the loan size does not shrink either. This entails a greater risk. The amortization is not a cost, but should be seen as an investment – because it will lead to longer interest costs in the future – so even if you have to pay more each month, it will be less to pay in total.
Your finances are taken into account when choosing the amortization rate
What you want also comes into play when you choose the repayment rate when it comes to finding a level that you feel comfortable paying every month, but at the same time is so great that the loan is repaid within a reasonable time.
It is always important to try to have a certain balance between how much you can pay each month and the total cost of the loan. The longer the repayment period you choose, the more you will pay in total for your mortgage.
At the same time, a shorter repayment period means that you get a higher monthly cost and there are of course limits to how much money you have to put on your amortization each month when you also have other costs to take into account. Maturities of up to 50 years are not at all unusual for mortgages so you do not have to feel that you have to choose a shorter repayment just because it would be a little cheaper. The mortgage is a fundamental part of the private economy for people who own a home so don’t worry about leaving the loan there for as long as needed.
How to do the amortization?
There is not an answer that is right or wrong when it comes to amortization, but it is very much what you think is important in everything. An amortization should be seen as an investment and the return you receive is as great as the interest you would otherwise have paid on the loan. The lower the interest rate, the less money you can say you earn from amortizing, but even though the interest rate is low today it can be high pretty soon ahead, so there are always reasons to amortize.
If you have room in your finances to repay or save money, you can choose what you think is best. Savings in the form of shares, funds etc. are historically better in terms of returns than amortization of their loans. But at the same time, there is always a risk that your invested money will not increase in value at all, they may lie still or even decrease, and then it would have been better to repay. You must do this balancing yourself.
When it comes to the mortgage loan itself, the formula is quite simple in terms of the impact that amortization has on the cost. A fast repayment rate means that you get a higher monthly cost but that the loan in total becomes cheaper. A slow rate of amortization is thus the opposite, with a low monthly cost but a higher total price.
If we were to suggest something, it is at least amortizing some of the loan. Maybe this is just a thousand bucks a month and you invest a thousand bucks in other savings. The banks themselves are not so quick to recommend that you repay because they make money from not paying off your loan, but most who are knowledgeable say that it is an advantage to pay off. This is not only good for you, but also for the risk level of the Swedish economy.