Is it a good deal to pay off a 20-year mortgage in 5 years? Relatively speaking, it is cost-effective

Home loans are different from other small consumer loans. First, the loan period is relatively long. Second, the loan principal is relatively large. Third, early repayment may require a certain penalty. Interest is not calculated on a daily basis, so you can pay off the loan in advance after a period of normal repayment. For example, is it cost-effective to pay off a 20-year mortgage after 5 years? Let’s take a look below.

1. Is it cost-effective to pay off a 20-year mortgage in 5 years?

Relatively speaking, it is a good deal.

There are two reasons:

1. The mortgage interest paid in the first five years is less than half of the total interest. Paying off in advance can save a lot of interest.

2. The penalty for early repayment is far less than the remaining mortgage interest. In comparison, it is more cost-effective to pay the penalty for early repayment.

2. Examples

Suppose the principal of the 20-year mortgage is 200,000, and the annual interest rate of the loan is equal repayment of principal and interest. In the past few years, more interest was repaid and less principal was repaid. , in the later period, more principal will be repaid and less interest will be repaid, then:

1. Total interest in 20 years = yuan,

2. Interest paid in the first 5 years = yuan, < /p>

3. The interest payable in the remaining 15 years = yuan,

The interest paid is less than half of the total interest. Paying it off in advance can save nearly 70,000 yuan in interest.

Generally, when banks pay off liquidated damages in advance, the maximum normal loan interest will not exceed 6 months. We might as well calculate it based on the maximum 6 months interest. The interest for the first 6 months after 5 years of normal loan repayment is Yuan, compared with the remaining 15 years of mortgage interest, you can get:

Yuan,

That is, with a liquidated damages of 4,043 Yuan, you can exchange for an interest saving of almost 65,000 Yuan, or Very good deal.

The above is the relevant content about "Is it cost-effective to pay off a 20-year mortgage after 5 years?" Of course, the specific loan interest and early repayment penalty are still subject to the loan contract. The calculation here is only refer to.

Under inflation, is it more cost-effective to pay a mortgage of equal principal or equal principal and interest for 20 years?

Equal principal amount is more cost-effective.

Equal principal and interest refers to a loan repayment method. Equal principal and interest payments are equal monthly repayments of the loan (including principal and interest) during the repayment period.

It is a different concept from the equal principal repayment. Although the monthly repayment amount may be lower than the equal principal repayment amount at the beginning, the interest paid in the end will be higher than the equal principal repayment amount. Equal principal repayment method, this method is often used by banks.

Repayment method and equal principal calculation

1. Repayment amount of equal principal and interest repayment method:

Monthly repayment amount: a[i( 1i)^n]/[(1i)^n-1]

(Note: a: loan principal, i: loan monthly interest rate, n: number of loan months)

2. Repayment amount with equal principal repayment method:

Monthly principal repayment: a/n

Monthly interest repayment: ani/30dn

Example: a loan of 500,000 yuan, an annual interest rate of 4.86%, and a repayment period of 20 years;

Equal principal and interest: Repayment after 20 years is 782,695.68 yuan, with a total interest of 282,695.68 yuan;

Equal principal: repayment after 20 years is 744,012.50 yuan, with a total interest of 244,012.50 yuan;

The difference between the two is nearly 38,600 yuan Yuan.

Extended information

Repayment method:

That is, the total principal and total interest of the mortgage loan are added, and then evenly distributed to each period of the repayment period. During the month, the monthly repayment amount is fixed, but the proportion of principal in the monthly repayment increases month by month, and the proportion of interest decreases month by month. This method is currently the most common and is also the method recommended by most banks for a long time.

The equal principal and interest repayment method means that the borrower repays the loan principal and interest in equal amounts every month, in which the monthly loan interest is calculated based on the remaining loan principal at the beginning of the month and is settled month by month.

The equal principal repayment method means that the borrower repays the loan principal in an equal amount (loan amount/number of loan months) every month. The monthly loan interest is calculated based on the remaining loan principal at the beginning of the month and is settled month by month. The total of the two is the monthly repayment amount.