In the past 20 years, our country's real estate industry has experienced an unconventional development rate, and owning real estate has become the primary pursuit of most Chinese people.
Such a frenzied market demand has caused housing prices to remain high and even rising.
Therefore, most ordinary people choose to buy a house by taking a mortgage from the bank, and the repayment period ranges from 10 to 30 years.
These people who are saddled with a home loan are often jokingly referred to as "house slaves", meaning that many years after buying a house are spent struggling for a house loan.
Xiao Li is also one of the very ordinary house slaves, he bought the house in 2018 when the house price was high, and his income was relatively high at that time, so he could cover the mortgage without pressure.
Unexpectedly, the mortgage has only been repaid for less than two years, and it has experienced a difficult three years of the epidemic until now, and the benefits of Xiao Li's company are shrinking day by day.
Correspondingly, Xiao Li's income has also dropped again and again, and the originally easy mortgage is now a boulder that he can't bear.
There was no way, Xiao Li consulted a professional, and after discussing with his family, he decided to take out his previous savings and repay part of the mortgage in advance.
When I went to the bank to make an appointment, I found that there were many people in the same situation as him, and they also wanted to repay the mortgage early because they felt that the economic environment was not good.
However, when going through the appointment procedures, the bank staff said that many people were really sorry for this operation, and they were simply "giving money for nothing" to the bank.
This made Xiao Li feel confused, didn't everyone say that it was better to repay the loan early? Why do the bankers say differently?
So is it stupid or smart to pay your mortgage early? Let's talk about it.
1. Why should you pay off your mortgage early?
In the past two years, the profitability of many large and small enterprises has plummeted, and some small companies have even failed to hold on.
As a result, many people will be drastically reduced or directly unemployed.
When the economic situation is good, the house they bought became a hot potato in their hands.
Because even if you are unemployed, even if you don't have a penny of income, the mortgage that must be repaid every month due is absolutely indelible.
From a practical point of view, if they want to solve the mortgage problem, there are only two options in front of them.
One is to give up the house, directly choose to cut off the supply, let the house be repossessed by the bank, and then auction it out through the auction process, and then calculate the difference.
But the end result of such a choice is very tragic, and losing the ownership and use of the house is only the first step.
Because the house will be sold at a discount for the first time at the bank auction, if the auction is not successful within the specified time, the price will continue to be reduced the price for the second time.
Until the house is sold, the money that can really be obtained by the bank may not be enough for the amount of the mortgage that the homeowner originally signed with the bank.
This means that the buyer will also lose the down payment that was previously made to the bank, as well as the monthly payment that has already been repaid.
In other words, all the money that the family has worked hard for years to buy a house and pay off the mortgage is just gone.
Therefore, if there is a way, people who buy a house will not choose this method.
Another way to relieve stress is to choose to pay off the mortgage in one lump sum or pay off part of it.
This is what we often call prepayment of the mortgage, which has the advantage of saving the interest that has not yet had time to repay the bank.
Because only part of the loan agreement signed with the bank when buying a house is the principal, and the other part accounts for the majority of the interest.
In a good economic climate, the value of the money left in the hand may be much greater than the mortgage interest, but in the current case, the opposite is true.
Therefore, if you repay the mortgage in advance, you can save a lot of interest, so as to achieve the purpose of saving.
Another benefit is that whether you pay off your mortgage in one lump sum or pay off part of your mortgage early, reducing the amount of the loan can alleviate the financial pressure you are currently under.
Especially for people whose income is declining or who are unemployed, paying off part of the loan will reduce the mortgage interest and reduce the amount of mortgage that needs to be repaid every month.
In this way, the pressure on the family is reduced, the house can be saved, and the whole family can take a breath in the current life.
Therefore, there have been so many appointments for prepayment of mortgages in banks recently, which are all helpless choices for everyone when the economic form is not very good.
2. Is early repayment of the mortgage a "free money" to the bank?
Why is it that repaying the mortgage in advance can reduce the pressure of the mortgage, but the bank staff will still sigh that it is "giving money for nothing"?
In fact, because the prerequisites for prepayment of the mortgage are different, the final result of the buyer is different.
Because at present, there are two types of repayment of mortgages in our country, the first is equal principal.
This repayment method means that the repayer has a lot of repayment amount in the early stage, and the repayment pressure is high, but the interest is relatively small, and the repayment pressure will gradually decrease in the later stage.
There are relatively few buyers who choose this method, because the pressure of early repayment is high, and many people can't afford it, and those who can afford it will directly choose to pay more down payment or buy a house in full.
The other is the more common equal principal and interest repayment method, the disadvantage of this repayment method is that the interest rate is high, and the advantage is that the monthly amount is fixed and the repayment pressure is slightly smaller.
For ordinary buyers who take out a loan to buy a house, equal principal and interest is the most cost-effective way after comparison, so most people choose this.
The bank has a contract for early repayment of the mortgage, that is, the early repayment within a few years from the signing of the contract is subject to liquidated damages.
This limits the time for the repayer to choose early repayment, and most people are unwilling to pay this liquidated damages.
So they will choose to prepay the loan after this period.
For those who choose to repay the same amount of principal, they have already repaid a large amount of principal in the previous years, and all they need to repay later is interest.
If you want to repay the loan early, then the bank will be repaid more with interest.
For repayers who choose equal principal and interest, if they have already repaid the loan for many years in the early stage, it is not cost-effective to choose early repayment when there are not many years left.
Because they have repaid the interest for many years, and what is left after that is the outstanding principal.
If you choose to repay the loan early, you will not save much interest, but make the bank cheaper. This is also the reason why the bankers say "give money for nothing".
Of course, more often than not, the mortgage has not been repaid for a few years, and the repayers who choose the repayment method of equal principal and interest are still owed a lot of interest to the bank according to the contract.
At this time, it is wise to choose early repayment to minimize interest expenses. It can also reduce the pressure of repayment.
So whether or not to give money for nothing depends on the specific situation.
3. Precautions for prepayment
Prepayment of a mortgage is to reduce stress and reduce the payment of interest to the bank, which is the fundamental purpose of the repayer.
Therefore, when deciding whether to repay the mortgage early, you need to consider this purpose as the premise.
First of all, the consideration of financial pressure, the premise of prepayment is that we must have such a sum of money in our hands to repay the loan.
If the family has a sum of savings, there is no problem in taking out some of it to pay off the mortgage early.
In this case, it is also important to calculate the family's savings for the next few years, and leave this money to consider repayment.
If the family does not have the money itself, it is not advisable to choose to borrow money or even take out a loan to repay the mortgage early.
Such an approach can only alleviate the short-term mortgage pressure, but the ensuing pressure of borrowing or borrowing cannot solve the fundamental problem.
In addition, when making the decision to pay off the mortgage early, you should also calculate the difference between the mortgage interest rate at the time of your purchase and the current mortgage interest rate.
If the current interest rate is high, the loan term is long, and the loan amount is relatively large, it is necessary to choose early repayment if there are conditions.
On the other hand, if the amount borrowed is not much, the remaining repayment period is relatively short, and the interest rate is relatively low, there is no need to repay the loan in advance.
In addition to this, it is also necessary to take into account the future development of the family as well as the development plan.
For example, whether there is an idea of changing the living environment in a certain period of time, whether there is a possibility of investment, etc.
If there is, then the funds should first meet the development needs, and it is not very necessary to repay the mortgage in advance.
If not, it may be that for a long time, the family's life will be relatively stable and there will be no need for investment.
The extra money is used to pay off the mortgage early, saving the family a sum of interest expenses, which is very cost-effective.
In short, whether you need to repay the mortgage in advance and what direction you need to think about before making this decision must be clearly understood.
epilogue
Should the act of prepaying the mortgage be attributed to being smart or stupid, and is it "giving away money" to the bank as long as it is repaid?
This question is not absolute, and as mentioned above, we need to analyze the situation on a case-by-case basis.
The decision to make a prepayment should also be based on a detailed analysis and consideration of the practical problems faced by the repayer.
There are many voices in the market, whether it is to persuade everyone not to rush forward regardless of paying off the mortgage in advance.
I still advise everyone not to repay the loan in advance, and stabilizing the funds is to stabilize all the voices.
These voices may have their own positions and purposes, and we need to have basic discernment when we receive them. No point of view should be absolute.
The house has been a family's biggest asset for many years, perhaps the product of generations of empty savings.
When dealing with anything related to housing or money, we need to make decisions based on our own financial conditions, the amount of savings and the specific situation of the mortgage.
Is that right?