Early repayment means that the borrower applies to the bank to repay part of his loan in advance, and ensures that the previous month is not overdue and the loan of the current month is returned; Pay off all or part of the loan in one lump sum according to the date stipulated by the bank.
Prepayment is generally divided into two ways: partial prepayment and full prepayment.
According to the different repayment methods, the borrower can choose to reduce the term or amount. It is understood that at present, most banks can provide five ways to repay loans in advance for customers to choose from.
First of all, all loans are repaid in advance, that is, customers will pay off all the remaining loans in one lump sum. (There is no need to repay interest, but the interest paid is non-refundable)
Second, some loans will be repaid in advance, and the remaining loans will keep the monthly repayment amount unchanged, thus shortening the repayment period. (save more interest)
Third, repay some loans in advance, reduce the monthly repayment amount of the remaining loans, and keep the repayment period unchanged. (Reduce the burden of monthly payment, but save more than the second one)
Fourth, some loans are repaid in advance, and the monthly repayment amount of the remaining loans is reduced, and the repayment period is shortened. (save more interest)
Fifth, the remaining loans keep the total principal unchanged and only shorten the repayment period. (The monthly payment increases and the interest decreases, but it is relatively uneconomical)
It is suggested to reduce the principal as much as possible to shorten the loan period and pay less interest.
Common way
The two most commonly used repayment methods for buying a house by loan are equal principal and interest repayment method and average capital repayment method.
Matching principal and interest repayment method is to add up the total principal and interest of mortgage loans and then distribute them evenly to each month of repayment period. The monthly repayment amount is fixed, but the proportion of principal in the monthly repayment amount increases month by month, and the proportion of interest decreases month by month. For a long time, this method is the most commonly used and recommended method by most banks.
The so-called equal principal repayment, the lender will allocate the principal to each month, and at the same time pay off the interest between the previous trading day and the repayment date. Compared with the matching principal and interest, the total interest cost of this repayment method is lower, but the principal and interest paid in the early stage are more, and the repayment burden is reduced month by month. Although this repayment method is very stressful in the early stage, it can alleviate the pressure in the future. Its characteristic is that with the passage of time, the less repayment, the easier it is.
Of these two repayment methods, which one is the most economical? Under the condition of the same loan time, the interest paid by equal principal and interest repayment method is higher than that by average capital repayment method, so the average capital repayment method is more cost-effective, but the pressure of early repayment is also greater. If there is an early repayment plan, it is best to choose the average capital repayment method.
However, not all people can afford the "average capital repayment method" to repay loans. For the wage earners whose wages are not very high, it will be a great burden to adopt the average capital repayment method in the early stage, which may break the family financial plan. At this time, it is recommended to choose the repayment method of equal principal and interest with less repayment pressure. For people with high salaries or diversified incomes, we might as well adopt the "average capital repayment method".