Nowadays, many people are trying to pay off their mortgage faster. Accelerated repayment of a mortgage provides many advantages, including extra financial space. However, you may have to pay a fine if you repay too much. You can read how that works in this article.
Mortgage interest tax deduction
The disadvantage you may face when accelerating your mortgage repayment is that you will be able to deduct less from the tax authorities. You must decide for yourself whether this is a problem. On the other hand, a mortgage remains a debt and the longer you have that debt, the longer you will continue to pay interest to the bank.
Banks and mortgage providers charge fines if you repay too much. On average, you can repay approximately 10% of your mortgage amount per year without penalty. If you want to repay more than this, you will pay extra interest that the bank will miss. The amount of that fine will depend on a number of factors, namely:
- the amount of your mortgage
- the amount you repay
- the loss to the bank in interest
Repay without penalty
Are there ways to repay without penalty? There are certainly ways. Most people repay because they suddenly have more money at their disposal, or because they have saved more money to be able to repay. You can then choose not to repay the money in one year, but to spread it out. If you hold 10% per year, you can divide a large amount for several years.
Pay off in full
If you have such a large amount and can pay off your mortgage in one go, you have to calculate for yourself what is wise. There are two scenarios:
- You pay off the mortgage in full plus a partial penalty, because the bank is missing out on a lot of interest
- You still pay off the mortgage in parts and do not pay a penalty
- You pay part of the mortgage plus a part penalty, but smaller than if you were to pay off the entire mortgage
What else can you do?
In addition to paying off your mortgage in full, you can also put your money in a savings account. This way you receive interest on the part that you cannot repay and you may be able to repay even more the following year. If you don’t feel like doing that, you can consider transferring the mortgage to another type of mortgage, where it is possible to repay more (or even in full). This way it takes some effort to convert, but you can repay with more money.
Accelerated repayment of a mortgage has many advantages, but may be accompanied by a fine. If the fine is too high, you can decide to repay less and spread the repayment over several years. This way you can still pay off more quickly, but you won’t pay a fine. In the case of large repayments, it is advisable to calculate what is best financially: repaying with a fine, or waiting to repay.