Your mortgage in 2022. Is it more profitable to reduce the term or the installment?

Options are contracts on stocks, indices, currencies, commodities or investment instruments(…)-“>options, on the one hand, reduce the term (continue paying the same amount but for fewer months) or reduce the installment (pay less each month but pay the same number of years). Both options are good since repaying early is a good sign, but the The answer as to which is better depends on multiple factors and there is no standard answer.

The first determining factor is the tax benefits, which in this case are only for those who bought a home before January 1, 2013, in this case if an early repayment is made, the Treasury returns 15% of what was contributed in the year up to limit of 9,040 euros (up to 1,356 euros of tax benefit, or double if a married couple owning the mortgage files the return individually instead of jointly. In this case, it is advisable to amortize up to that limit, neither more nor less (if there is more money, it is left for successive years) since currently you will not find a more profitable option for that money.If you have a few years left to pay, the best thing would be to amortize the installment and not the term to take advantage of this tax bargain as much as possible.

For the rest of the mortgaged, who do not have the fortune to be able to deduct that money, the decision depends on the economic situation of each one, if the mortgage does not entail a great burden, it is best to reduce the term and not touch the fee since they end up paying less interest as it is generated over a shorter period of time, which allows you to save more in the long run. In the event that the payment of the mortgage is a great financial burden, it is advisable to reduce the amount to be paid in order to alleviate the payments that are made on a monthly basis.

One aspect to keep in mind is that it is always preferable to pay off during the first years of the mortgage, since that is when the highest interest rates are faced. And it is that in most mortgages in Spain, the form of payment follows the French method, which consists of paying more money in the form of interest than in capital at the beginning. In this case, it is convenient to study the commissions for early repayment since part of the savings could go to the bank.

Finally, the decision to repay early in the middle of 2022 does not make sense from a financial point of view since with negative rates, achieving a return on savings is frankly difficult and the decision should be solely personal for the peace of mind that one has by owing less to the bank.

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