For borrowers, besides the interest rate, the borrowing time is also very important for them to consider. Are short-term home loans better than long periods of time?
Under the current policy, banks usually provide home loans for ten to twenty years, depending on the borrower’s financial condition and repayment capacity. With short time or long loan time, there are advantages and disadvantages.
Short-term home loan: Quick loan repayment, but the monthly repayment pressure is very high
Having been a borrower for a home loan, anyone would like to quickly repay the loan. However, the biggest drawback when you choose a short term loan is the ability to pay the debt, the pressure to pay will weigh on your shoulders monthly.
In case you delay payment within the month, depending on the number of days late, you will be fined by the bank for a fee, in addition you are classified as types of debt attention, bad debt lead to your credit rating and affect your ability to borrow in subsequent times.
Long-term mortgage: Reduce repayment pressure, but high pay
When you choose a long-term home loan, for example, 25 years, you’ll be able to make a big monthly payment. According to the calculations that most banks are applying is the method of calculating interest based on debt reduction gradually. Each month, you will pay interest and principal, which is equal to the average loan amount divided by the loan period (in months), while the interest will be calculated according to the formula:
- First month interest = Loan amount x Interest rate
- Monthly interest = Principal amount x Interest rate
As a result, monthly payments including both principal and interest will be reduced by the monthly outstanding balance.
By this calculation, the shorter the loan term, the higher the monthly interest you will pay, because the monthly payment is very high. Therefore, the advice that financial specialists give to those who borrow money to buy that home should choose the package for a long time.
Choosing a long term loan will have the benefit of reducing your monthly payments, reducing your repayment pressure, giving you the funds to invest in other things as well as the right living expenses. However, this also raises the psychological fatigue when thinking of pay in 20-25 years, accompanied by the risk arising in the long run.
Smart choice when borrowing money to buy a home: Long-term loans and efforts to repay debt ahead of time
One of the ways that most smart homebuyers choose to borrow from a bank is long-term borrowing and trying to repay their loan before the loan term, subject to a penalty for early repayment. For example, they borrowed VND 1 billion with a repayment time of 20 years. However, they will try to close the loan quickly from the 10th year and pay the early repayment fee.
The bank’s current home loan programs focus on interest rates, combined with valuable gifts and discounts on specific housing projects through a bank-to-bank and the developer, also developed the fee for early repayment of debt. Currently, many banks offer preferential loan packages when payers pay only a 1% penalty in the first year, and 0.5% in the following years, and free of charge from year 5,6. For example, Shinhan Bank’s mortgage loan program introduced 3% first year, 2% second year, 1% third year, 0.2% 4th year, 5% Penalties from the 6th year onwards …
When your balance is small, you are able to balance the amount of the loan and can repay the loan ahead of time. Debt-arisen loans make you more tired, but it also motivates you to try harder in the work. In addition, the loan is also effective leverage for you to try harder in the job, from which qualified financial debt repayment. On the advice of financial experts: Do not miss the cost of debt repayment before the term (about 2-4% depending on the policy of each bank) that repay as soon as possible and if the interest you pay time After the cost of debt repayment ahead of time, there is no reason why you have to think more.
For first-time homebuyers, they will find it difficult to calculate interest rates and to consider the choice between banks by many factors: interest rates, borrowing time, loan limit, debt repayment fee … It is very important to understand your needs and repayment capacity, but the choice can be made by consultants who are experienced and expert. The main thing to pick yourself a best home loan package.
To make your home loan more convenient, Rever provides you with a monthly interest rate mortgage calculator. The material is free of charge.
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