Differentiated payments, their advantages.
The word "mortgage" in our days is familiar to everyone. Someone has improved the housing itself, someone familiar or relatives took an apartment and now they pay a large sum every month.
If you are planning to purchase real estate using this type of lending, then surely there will be a choice in due course over which, annuity or differentiated payments are to be paid.
Let us consider in more detail which payments, what are they and what are the advantages.
Differentiated payments - a type of loan payment, in which the bulk of the debt is paid in equal parts, and interest will be charged on the balance.
Annuity payments are also a type of loan payment, in which both the principal and interest are paid in equal installments.
What are the advantages of some payments to others in terms of the average person?
In the first variant, interest is accrued onthe remainder, and since it is decreasing, the payments will also decrease with time. Depending on the timing, the amount of monthly payments may be reduced by a factor of two compared to the original one.
The undoubted advantage is that payments over timeare decreasing. Mortgage is taken for 10-25 years, and during this time the well-being of the family can greatly shake the dismissal of one of the spouses, a long illness, the appearance of an unplanned child from the beginning. For these or other reasons, it will be very difficult for the family to pay a large amount of money monthly. Constant reduction of payments, which provide differentiated payments, will be very handy.
The truth is, there is a significant disadvantage. Since the amount of debt is unchanged and interest has also not been canceled, this reduction in recent payments is achieved by increasing the former. Comparing the differentiated payments with annuity, we can say that the payments for the first years on differentiated ones will be much higher. Not every family can afford such a financial burden. Accordingly, banks are less likely to give "good" for a mortgage with such a system of payments. On the other hand, if you consider the entire amount that the borrower will give to the bank along with the interest - then with differentiated payments, it will generally be less.
The annuity has its pluses - monthly payments do not change over time, which means that you can plan the budget for many years to come. In addition, the initial payments are not so high.
But on the other hand, if the welfare of the family does not change for the better, the debt will be paid very hard.
Another significant disadvantage is thatthus, it is not profitable to close the mortgage ahead of schedule. No, there will be some benefit in any case. But the fact is that initially (in the first years) most of the payments are interest on the loan. Over time, the bulk of the debt and interest are equalized, and in recent years, the borrower mostly pays the debt. Hence it follows that by closing the mortgage ahead of schedule, the family will pay not only the entire debt, but also the greater part of the interest.
If there is a mortgage ahead of you, differentiated payments can be calculated according to the following scheme:
(Loan amount * for a monthly interest rate * period (in months) for which a loan is granted + 1) / 2 = monthly interest payments.
The amount of debt / period for which a loan is issued (in months) = the amount of the principal debt that must be paid monthly.
However, manually calculate monthly paymentsnot necessarily. Most banks publish on their pages online calculators, which allow you to pre-calculate annuity and differentiated payments. It is enough to choose the crediting period, the amount of the first installment, the interest rate. The mortgage calculator itself will calculate the amount of the overpayment and the monthly installment.