Is it worth taking out a mortgage in general and in 2021 in particular?

Last update: 02-07-2020

Coronavirus, lower oil prices, stock market collapse, ruble collapse. Well, we have another crisis.

In this article, we will figure out whether it is worth taking out a mortgage in 2021 or is it better to wait until the situation normalizes?

It is important to understand! A mortgage is a working tool that really helps you get your own home, but only if you use it wisely.
Do not believe those who are against mortgages; as a rule, for this category of people the housing issue has already been resolved.

Banks are now offering very attractive mortgage rates.

Let's figure out why a mortgage loan isn't so scary? Is it worth taking out a mortgage during a crisis?

When should you take out a mortgage?

Before you take out a mortgage for an apartment, you should not only assess your financial capabilities, but also study market indicators.

Market indicators

First of all, pay attention to the interest rate. The lower it is, the less the overpayment will be. In our country, if the mortgage rate is less than 11-12%, the deal is considered profitable.

If you look at it on a large scale, the increase in the level of interest on loans depends on the following factors:

due to the introduction of international sanctions, the influx of investment into the Russian economy has decreased;
at the same time, export prices for oil decrease and the ruble depreciates;
It becomes more difficult for banks to attract new capital, as a result of which interest rates on loans rise.

Also take into account the current dollar exchange rate and its tendency to rise or fall. If the dollar rises against the ruble, it means that the Central Bank refinancing rate will increase. This, in turn, will entail an increase in loan rates, incl. and on mortgages.

For example, when there was a jump in exchange rates in 2014, mortgage rates rose to 17-18% per annum. Many borrowers were simply scared to take out a long-term loan at such interest rates, but there was no way out.

Therefore, if a mortgage is issued at a low interest rate, and the foreign exchange market is stable, it’s time to apply for a mortgage now.

Own capabilities

When thinking about how to decide on a mortgage, evaluate the following parameters:

your income;
desired loan size;
expected repayment period.

Based on these data, knowing the interest rate, you can calculate the size of the monthly payment and draw conclusions about the possibility and feasibility of obtaining a mortgage.

Also consider the following factors:

additional income (for example, investment or from deposits, or an existing part-time job);
already having loans and other obligatory payments.

Assess whether you will be able to pay the bank the amount of the established payment every month for a long time or not. How stable is your income, will it be enough to have enough money not only to repay the loan, but also for everyday life.

You can find out what salary should be for a mortgage from our previous post.

Pros of a mortgage

Of course, such a loan is not cheap, but the positive aspects of a mortgage justify the risks:

You don't need to save a large sum over many years to buy a home. You can become the owner of an apartment or house right now. To do this, you only need to have on hand the amount of the down payment. And the period during which the loan is issued, as a rule, does not last more than 1-2 months.
You can move into the apartment immediately after completing the transaction.
When applying for a mortgage, you can use one of the government social programs, if there are grounds for this. For example, you can receive a subsidy or maternity capital funds, with the help of which part of the debt will be repaid.
By taking out a mortgage on an apartment, you can get a tax deduction.
Even if you lose your job, you can contact the bank with an application for a deferred payment.
The interest rate is lower than on a consumer loan.

If the loan rate is low, your income allows it, and even more so it is possible to receive a subsidy, you should not be afraid to take out a mortgage on your home. Yes, with a mortgage loan, you will have to make monthly payments to the bank, but in return you will get your own home.

Advantages of a mortgage loan that should not be forgotten

Now let’s get acquainted with the advantages of a mortgage in order to ultimately decide whether to take out a mortgage.

Buying an apartment with the help of a mortgage is much safer than just through a real estate agency, because... the bank at least somehow checks the documents and is interested in ensuring that no problems arise in the future (not a 100% guarantee, but something). This way you can even arrange everything without realtors and save on commissions. The only thing is that you need to correctly draw up a preliminary agreement, but this is not that difficult, some banks even provide their own form.
A mortgage loan typically has a lower interest rate than a consumer loan.
Registration of documents on mortgage transactions takes place in just 7 days.
A mortgage allows you to buy a home much earlier than if you save money for it. This is especially true for those who live in a rented apartment. It’s one thing to pay for your own house and another when you have to pay for someone else’s apartment (possibly purchased with a mortgage). about what is more profitable , a mortgage or a lease, in this article.
Another plus is that if you save money, then inflation will “eat it up,” while the purchased apartment, on the contrary, becomes more expensive. Again, due to inflation, payments will become less and less burdensome from year to year.
You can get a deduction (popular questions about deductions) from the interest paid on the mortgage and thereby get back 13% of the amount spent (instructions on how to fill out the 3-NDFL declaration), and then make it as an early payment on the mortgage (overpayment and term will be reduced).
If problems with money still arise, no one will kick you out of the apartment so easily. You can take a credit holiday.

Market indicators

You should not make a hasty decision and apply for a mortgage if the situation on the foreign exchange market is not stable. If the dollar/ruble exchange rate is growing rapidly, then banks may raise loan rates. In times of economic crisis, there were often cases when borrowers submitted an application at one percent, and by the time it was approved, the bank set an increased rate. There was no way out; there was no way to buy a home for several million rubles, so many decided to take out a mortgage on less favorable terms.

Someone will say: “I’m afraid!”, and they will be right. After all, at a high rate, the overpayment even for 10 years will be more than the cost of the apartment itself.

It is also risky to draw up a mortgage agreement not in Russian rubles, but in US dollars or Euros. As the exchange rate rises, monthly payments in ruble equivalent will increase many times over.

Own risks

A responsible borrower, as a rule, is afraid to take out a home loan if the company in which he works is unstable, there is a risk of dismissal or a change in professional field. To be sure of your solvency, evaluate the reliability of your workplace at least for the period of validity of the mortgage agreement.

Do not take out a mortgage if you are planning to move in the near future.

Is it possible to get a mortgage loan with a low income? It is possible, but you should consider the following:

what amount will remain after repayment of all obligatory payments;
will it be enough to live on;
with a minimum payment amount, the loan term will be the maximum possible (up to 30 years).

The main risks and dangers inherent in mortgage lending

Of course, this type of agreement also has its own probable risks, which in most cases depend on the duration of the agreement and its monetary value.

There is still a possibility of losing your source of income (for example, losing your job). Nevertheless, this reason is more or less valid and makes it possible to ask the bank for a certain deferment in repaying the debt (credit holidays, which we mentioned above). During this time, you can, at a minimum, find a job outside your specialty and, at the same time, continue looking for a vacancy that will be no worse than the previous one. This period can be mitigated by a reserve for a rainy day, which is best prepared before signing the mortgage agreement.
There is a possibility of health problems. The best helpers in this case will be the same stash, as well as a health insurance agreement signed in advance. These methods will not protect you 100%, but it will still be much calmer.
Recognition of the transaction as invalid. To protect yourself from such a case, it is necessary to enter into a title insurance agreement, which will allow you to receive full compensation for the cost and minimize all possible risks on the buyer’s side. Title insurance is a reliable method of protecting against unexpected surprises.

Once again, remember our basic advice: assess all risks as realistically as possible and prepare an amount that will allow you to avoid problems with payments during unforeseen problem periods.

Cons of a mortgage

So that the borrower personally and his family are not afraid to take out an apartment on credit, it is necessary to assess in advance all the consequences of concluding an agreement:

The housing will be pledged to the bank. Therefore, it cannot be sold until the loan is fully repaid.
The borrower assumes long-term financial obligations to make regular payments of a significant amount.
When concluding an agreement, the bank client also bears additional costs for real estate valuation and insurance. Often, when applying for a mortgage, it is customary to insure not only the property, but also the life and work capacity of the borrower.

What will happen to the mortgage already taken out?

Mortgages before the crisis in 2021 were quite profitable; interest rates were set at a minimum level, which thousands of Russians took advantage of. However, even now, when the situation is unstable, there is no need to panic. Banks have worked out scenarios for overcoming the crisis with minimal losses. The lender's difficult financial situation will most likely not have any impact on existing mortgage borrowers.

However, experts are seriously concerned about possible job cuts and a drop in real incomes of borrowers . This is something you really should worry about and think through in advance how to solve the problem. If previously such a client was considered quite wealthy for the bank, today he may fall into arrears due to dismissal or a reduction in wages.

How to pay a mortgage during a crisis? Just like they paid it off before. The terms of an already issued loan will not change; this is stated in the bank agreement. The interest rate, amount and date of monthly payment remain the same. Unless you have taken out a mortgage with a floating interest rate depending on the key rate of the Central Bank, but such loans are rare.

The problem is that banks may change rates on other transactions to compensate for financial losses. We have already seen this in the example that established a commission for all transfers over 50 thousand rubles. Such measures will affect mortgage borrowers only indirectly; interest is not charged for replenishing the loan account. But it would be reasonable to expect the introduction of commissions for other transactions, for example, for transferring money to the seller when applying for a mortgage.

Is it profitable to pay off your mortgage during a crisis? The economic situation is extremely unstable, so many people may lose a permanent source of income. If it is possible to close the loan early, it is better to do so). Mortgage and the financial crisis can seriously hit the borrower's pocket. But you shouldn’t forget about the financial safety net, because after the debt is closed, a person should have some savings left.

If you doubt whether it is worth paying off your mortgage early during a crisis, calculate the profitability of this operation. See how much you can save on the final overpayment, because if you make an early payment, the interest amount is recalculated in favor of the borrower. To carry out accurate calculations, use special online calculation services.

Mortgage in 2021

Let's consider whether it's worth taking out a mortgage this year. Most likely, yes, because the market situation is now quite favorable for concluding such transactions. The country's authorities, within the framework of national projects, have chosen mortgages as one of the tools they really count on. According to government plans, mortgage rates should fall to 8% by 2024. It has already fallen below 9% in 2021 and will continue to decline unless something bad happens.

The state actively supports mortgage borrowers by stimulating them with special preferential mortgage programs. In 2021, there are several such programs:

Family mortgage – a mortgage for families where a second child was born after January 1, 2021. Under this program, you can purchase housing in a new building from a developer at a rate even lower than 6% per annum.
Mortgage at 2% for Far Eastern residents - residents of the Far East have the right to purchase housing at a preferential rate of only 2 percent, but are required to register in it for a period of at least 5 years.
Rural mortgage is a preferential program for residents of rural regions. With its help, you can purchase housing at a rate of 0.1 to 3% per annum.

There are also support measures for mortgage borrowers who have already taken out a loan:

Maternal capital. In 2021, it is indexed and amounts to 466,617 rubles. It can be used to pay off the mortgage or make a down payment.
450,000 to pay off the mortgage for the third child. If your third and subsequent child was born after January 1, 2021, then you are entitled to 450,000 rubles to pay off the mortgage. At the same time, there is no difference whether it was a secondary housing or a new building.

We should not forget about the general situation in the country, namely

Low inflation.
The exchange rate is quite stable.
Prices on the housing market are now almost minimal.

Recommendations from experts

Will the crisis affect mortgages? Of course, Russians should also prepare for not the best development scenarios. The situation is complicated by the fact that it is impossible to make any forecasts, because the situation is developing rapidly.

Mortgage during the crisis 2021 – recommendations from financial experts:

No need to panic. If you already have your mortgage application approved and you were committed to taking out a loan, go ahead and do it. Interest rates will only rise further.
If you are not sure whether you will have a stable source of income in the next few years, refuse to take out a loan. A mortgage before a crisis is not the best solution, especially when your field of professional activity is sensitive to changes in the economy. And you certainly don’t need to take out other loans without knowing how you will pay for them.
If you doubt how the crisis will affect the mortgage taken out earlier, try to pay it off early so that there is no unnecessary negative factor for the family budget. If this is not possible, consider the option of refinancing with another bank or taking out a credit holiday.
The decision whether to take out a mortgage during a crisis, made in conditions of general panic, is very bad. You should not give in to negative sentiments in society, because you will have to pay for the mistake you made for many years. Before you sign the documents for a home loan, calmly and carefully weigh the pros and cons.
Are you worried about how the crisis will affect your mortgage and have decided to take out job loss insurance in advance? Experts advise not to rush into such an acquisition. The fact is that such insurance products have many pitfalls, which only an experienced person can understand. As a rule, dismissal takes place at one's own request or by agreement of the parties, and such cases are not covered by insurance. Most often, such a policy turns out to be a pointless waste of money.
Regardless of how the crisis affects your mortgage, you should create your own financial safety net. Of course, it was necessary to start doing this not today, but many earlier. But even at the current moment, saving money is not an unnecessary precaution, because no one knows how the situation will develop.
Buying an apartment with a mortgage during a crisis is only profitable if you invest overwhelmingly of your own funds. There will not be a serious collapse in the price market. Projected price fluctuations will not be as significant. Experts believe that the real estate market will be able to survive even several weeks of total quarantine.
If you decide to take out a loan, think about whether it is beneficial for you to take out a mortgage during a crisis? Will you have sufficient income, what are your options for earning money in case of layoffs? Does the bank allow you to rent out an apartment if the borrower has financial difficulties? You need to be completely sure that you can pay this debt without delays or trial.

Whether to take out a mortgage during a crisis
or wait for the economy to stabilize is up to you, depending on the current situation. But if you are determined to get a loan, be sure to listen to the recommendations of financial experts.

Is a mortgage profitable during a crisis? Most likely not, because now banks find themselves in a situation where their risks are maximum. It is extremely unwise to actively issue loans in this situation; no one can guarantee their subsequent repayment. Restrictive measures will be introduced (increasing rates and down payments, tightening issuance rules). In addition, the financial situation of many potential borrowers may change for the worse.

At the same time, rural mortgages will be issued even during a crisis. But the verification of mortgage borrowers and future collateral will definitely become more stringent. Preferential lending programs and previously approved applications at low rates are perhaps the only profitable mortgage options now.

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Author:

Mortgage specialist Maria Yurievna Sokhan

Date of publication March 28, 2020 March 28, 2020

How to make money on a mortgage

With a mortgage loan, you can not only purchase a home, but also make money on it.

Method 1

If you have a main apartment for living, then having the amount of the down payment, you can take out a mortgage on the apartment from the bank and then rent it out.

The main thing is that the amount that renters will pay is equal to or greater than the monthly loan payment. Thus, all expenses under the loan agreement will be covered by the rent, and in the end you will become the owner of the home that others actually paid for. If the rent also exceeds the loan payments, then in addition to the apartment itself you will also receive additional income.

Method 2

Having a substantial monthly income, you can take out a mortgage for an apartment in a new building under construction. In this case, its price will be an order of magnitude lower than the market price compared to when the house is completed.

At the same time, it is worth taking out a mortgage for a short period in order to pay off the loan as quickly as possible, and the overpayment is minimal. After a while, when the loan is repaid and the house is rented out for housing, this apartment can be sold at a much higher price than it was purchased, taking into account loan costs.

Method 3

Play on falling real estate prices. Now is one of the best times to buy real estate, as there is a chance to buy a resale option with a good discount. A large number of unsold apartments have accumulated on the market; if you manage to find a good deal and sell at the seller’s price, then after the inevitable rise in real estate prices you will be able to sell the apartment with a plus, even taking into account interest.

The main disadvantages of mortgage lending

The main disadvantages of mortgage lending are a consequence of the long term of the agreement itself, which is formed under the influence of the too unaffordable cost of real estate and the small personal savings of the signatory.

From all this follow several main disadvantages that scare off most potential buyers of an apartment or house with a mortgage:

Some people simply can't afford the mental burden of having a debt that will hang on their shoulders for a couple of decades.
Many people are not confident in the stability of their income, permanent job, etc., which can cause debt to a creditor.
Many people stop at the stage of collecting documents, because they have to provide a lot of different documents and spend a huge amount of time checking them and waiting for the application to be approved by the bank.
Another disadvantage is the need to pay for annual insurance, which will also eat up a lot of money.
In most cases, you will have to have money for a significant down payment, and some people don’t even have that.
If you extend the loan over the entire term, you will have to overpay too high a percentage. Only those who begin to repay their debts ahead of schedule overpay relatively little.
Until the debt is paid in full, the apartment seems to belong to the mortgage payer, however, its legal status has many restrictions that will not allow it to be disposed of in full.
Selling such an apartment is almost impossible.