Having a mortgage and a loan (at least one) is not uncommon. Let’s find out how to pay them off at the same time and ahead of schedule.

How to pay off several loans

The earlier you start paying off your loan and mortgage early, the more you will save in the end. Because first of all you pay the interest, and then the body of the loan.

At the same time, you should not start paying off your loan and mortgage early at the first opportunity.

Before you start paying off the loan and mortgage early, it is better to accumulate a certain amount. Since it is difficult to guess what will happen to your financial situation next. It is better to accumulate an amount of three to six monthly payments, and then start making early repayments.

Depending on which loan, credit or mortgage you have more debt, you can determine your plans for repayment. 

You also need to first calculate the ratio of income to expenses.

How to calculate income and expenses

First of all, it is necessary to assess what amount of payments is more convenient for you. This amount depends on your regular spending. If there is a lot of spending and little free money left, it is difficult to pay off loans early in such a situation.

If you want to take a loan and are considering different options for the term and interest rate, a loan calculator will help. These can be found on the websites of banks. It will show what the payment will be in each case. Also, the calculator can show how much money you will eventually have to pay for the entire loan, depending on the parameters selected.

What the ideal debt load should be

The debt load indicator is the ratio of all loan payments to the borrower’s total income. This indicator should not exceed 50%. Otherwise, the risk of default increases.

For borrowers, the debt load indicator is useful because it allows them to make a sober assessment of their solvency. It is important to remember that 50% is a critical level. Ideally, the maximum payment on all loans should not exceed 30% of monthly income.

What are the types of early repayment

There are not so many types of early repayment of the mortgage: full and partial. In the first case, you pay the entire remaining amount (the bank recalculates the interest) and the loan is closed. 

In the case of partial repayment, you deposit larger amounts into the bank account – more than the standard monthly payment. After that, two options are available: shorten the term of the loan or reduce the monthly instalment.

Is it more favorable to shorten the term or reduce the payment?

If you choose to shorten the repayment term, the monthly instalment will remain the same. You’ll be able to pay off your loan much faster. As a result, you’ll save on interest. And if you decide that it is more convenient for you to make smaller payments, you can reduce your debt load. However, the term of the loan will increase.

What you need for early repayment

To partially repay your loan and mortgage early, choose the amount you can part with without consequences. The bank will not restrict you. But first study the contract – whether there are no penalties or other sanctions in case of early repayment. 

To fully repay the mortgage and loan ahead of schedule, read the relevant section of the agreement. Pay attention to the paragraphs where it says about the amount of interest that will be accrued in the period until the full repayment of the loan. Also pay attention to the period for which you need to notify the bank.

After that, contact the bank to help you calculate the amount for full early repayment, and deposit the money at the appointed time.