When it comes to the vast majority of loan forms, it is no problem to settle a loan early. It is normal to just contact your lender and ask where the money should be deposited so it is all resolved at no cost.
But for mortgages, it is not really that easy, but here it depends on the type of mortgage you have. Namely, it can cost you money to settle the loan early.
High cost but low interest rates
This is something that is often very good for mortgages. Most of us will never borrow more money, but this is the biggest loan we will get. After all, a fairly cheap house costs around USD 1 million and is borrowed when 85% of this is the sum more than double compared to the maximum size of a private loan.
But since it is a loan with collateral, the risk, despite its size, becomes less for the lender, which means that the interest rate is usually clearly lower than for other loans. So even though the total cost eliminated per month can be quite high for mortgages, you should consider if it is the right debt to repay. If there are no other debts it may well be right but if you have other loans with higher interest rates it is most economical to settle these first even if the monthly cost is lower. The important thing is how high the interest rate is.
Invest the money
If we assume that you have had access to the money required to repay the loan without having sold the home, it is also an idea to consider whether you should really use the money to get rid of the loan.
You have the option to invest the money in shares, funds or similar. If you look at it all from a historical point of view, for example, the stock market has gone up clearly more per year than mortgage rates tend to be.
Then whether it is right for you or not to choose to invest the money instead is entirely up to you. It is always a risk to invest money in this way, but it can also be solved.
Resolve a tied mobile mortgage
Anyone with mortgages knows that it is possible to choose between variable and fixed interest rates. To be careful, the variable interest rate is actually an interest rate that is tied up in three months. It is also variable interest rates that are usually the cheapest. The big advantage for you as a borrower is that if you only have a fixed interest rate on your mortgage, it is no problem to settle the loan early without any extra costs. Just contact the lender and ask them how to pay the money.
Resolve a tied bond
It is really only when it comes to bound loans that it can be a little more complicated to settle a loan. Bonding time for mortgages can range from 1 to 10 years depending on what you have chosen and what your lender offers.
You can of course redeem your loan if you want before the maturity has expired. This is true for all loans, but when it is a bond, you will probably have to pay something called interest rate differential.
Interest rate difference is a payment that you can make to the lender to reimburse them for the cost of the loan that they would still have. It is because they have also borrowed money and tied them up for as long as you did. This means that they have the cost of your loan even after you redeem it. The compensation thus covers these costs, it does not cover the loss of profits for which it occurs.
The actual calculation for interest rate differential compensation is not so easy to do but the tip is to contact your lender so they can figure out what it will cost you.
One thing that is good to know is that when the maturity period has expired on the loan and you should negotiate it, you can repay the loan without any extra costs. Then you can choose whether to tie it up for several years again or if you want variable interest rates in the future, a mixture of both works well. If you have mixed, you can redeem the variable part of the loan at no extra cost.
Profitable to repay the mortgage?
As we talked about before, a mortgage is large but often relatively cheap. This means that it will normally be repaid at the bottom of the list of loans. However, if you have no other loans, it can definitely be profitable to settle it early.
If interest rate compensation is to be paid, you absolutely lose money and these can clearly make it no longer worth repaying the loan.
Then it is also the alternative of investment that you should consider as it may very well be more profitable. However, there is a risk that you should be aware of.
Selling the home
Since the home is the collateral for the loan, you must have this property in your possession for it to function as collateral. This means that if the home is sold, the loan must also be redeemed. This is independent of whether the interest rate is variable or not.
If you buy a new home, it is not impossible for the lender to agree to transfer the loan to the new home. For this to be an opportunity, a number of things are required. First of all, the lender is interested in this. Then the new home must be such that the loan can follow when looking at price, loan-to-value ratio, etc. Last of all, you yourself must have an economy that is good enough. If you can transfer the loan to the new home, you do not have to settle it and do not have to pay any interest payment.
If you sell the property and do not want to buy a new home, it will only pay back the loan even if it costs you money.