Interest rates on loans are increasingly falling, but prepayments can be worth it if you can. RacionBank is looking for an answer to when you might want to spend your savings on early repayment rather than any other savings.
Interest rates on loans are higher than interest rates on deposits. Based on this, we can be sure that it is almost always worth paying off our credit rather than saving. Unfortunately, in most cases, the prepayment is not free, and banks may charge a different fee, as they will have to re-lend the funds that have already been placed, which is a new cost for them. This can be a fixed amount or a few percent of the amount you want to prepay.
When is the Prepayment Free?
A March 1, 2010 For the majority of contracts concluded before, the mandatory rule is that the first partial or full prepayment made 24 months after the entry into force of the contract shall be free of charge, unless the partial or total prepayment is or if the prepayment amount exceeds one-half of the loan amount specified in the loan agreement.
No fee will be charged even if the outstanding debt does not exceed HUF 1 million and there has been no prepayment in the previous twelve months.
Otherwise, the prepayment fee is a maximum of 1% of the outstanding principal or, if the loan is redeemed by another financial institution, a maximum of 2% of the outstanding principal.
So, once in a while, we can prepay half of your debt for free over the life of the loan, and then, when your debt falls below $ 1 million, we can do the same. In this case, it can always be said that if we have savings, we can get it out of it, since the interest on a loan is almost certainly higher than any potential savings.
But it doesn’t matter why we charge it
If you decide to prepay, it is worth leaving the installment unchanged and agreeing with the bank to reduce the maturity. This is important because reducing the installment payment will not reduce your bank debt even more quickly after the prepayment. Which also means a high interest rate liability. If we were able to accumulate savings along with the repayment, then stick to the original repayment installment, only with a shorter maturity.
The difference between the two is illustrated in the following figure. This is how much you gain by paying off a current 10% loan of $ 3 million in principal with different amounts. But in one case the installment was reduced and in the other the maturity after the installment.