When choosing a mortgage loan, the borrower pays attention to many factors: loan amount, interest rate, conditions for early repayment of the mortgage, its validity period, and so on. However, it is important to understand that even with the same interest rate, the amount of overpayment in different banks may be different, since it directly depends on the type of monthly payments offered by the bank. There are two main types of payments: annuity and differentiated (equally decreasing), the latter have recently been offered only by a few banks.
Annuity payments - features and calculation formula
The most common type of monthly payments in Russia today are annuity payments . This method involves a fixed amount. With rare exceptions, it can be changed due to early partial repayment or with the consent of both parties.
So, the borrower pays the same amount every month, distributed to repay two parts of the equal payment structure . At the same time, at first, the main part of it goes to repaying interest, and not to repaying the principal debt. However, over time, the situation changes, interest decreases, and the repayment amount increases.
Advantages and disadvantages of schemes
To decide which loan is better, you need to consider and compare the pros and cons of each scheme. The main advantages of the annuity payment include the following aspects:
- the same monthly amount frees you from the need to control the payment schedule and makes it possible to set up automatic payment;
- in the case of mortgage or other long-term lending, you can plan the family budget for several years in advance;
- An annuity payment scheme allows you to obtain a much larger borrowed amount.
Among the disadvantages of this method, the following points are usually highlighted:
- a significant amount of overpayment, especially on a long-term loan;
- Early repayment has a rather weak effect on the debt amount.
As for differentiated payment, its strengths include:
- reduction of monthly fees over time;
- a slight overpayment compared to an annuity;
- rapid reduction of the principal amount;
- favorable early repayment.
Relative disadvantages include:
- increased financial burden at the beginning of the term;
- the need to carefully adhere to the debt payment schedule;
- restrictions on the amount borrowed.
How to calculate differentiated mortgage payments?
The second type of monthly payments seems more profitable for the borrower - differentiated . However, today most banks have abandoned this method of payment. The reason is supposedly the convenience for the client of a constant amount, but it is also worth understanding that with such a cooperation scheme, the bank significantly loses in profit.
The essence of this scheme is that the largest payment will be the first installment . The part of it going to repay the loan will always remain stable, and the part going to repay interest will decrease every month. This happens because the principal amount of the debt decreases every month, and accordingly, a smaller amount will be spent on repaying the interest from the ODS.
Since this type of payment assumes that at first the payer will be forced to give a very large amount to the bank, this calculation scheme is not convenient or possible for everyone. The bank carefully studies the solvency of the potential borrower and, based on his income, decides whether he is able to repay the mortgage in this way.
To calculate the amount of differentiated payment, use the following formula:
Where DP is a differentiated payment, OOD is the balance of the principal debt, n interest periods is the period until the end of the loan in months, the rate is % annual interest rate. Dividing by 100 is necessary to convert the rate to a percentage. Divide by 12 - to obtain the result for one accounting period, that is, a month.
Subsidy for mortgage repayment
Russia has a program to provide free municipal housing for low-income families and individual citizens. However, the implementation of this program is delayed; it takes 20 years to wait for the required square meters. Therefore, in parallel, special preferential schemes for financing the purchase of real estate are being introduced for citizens in need.
For example, for young families there is a Federal program of the same name “Providing housing for young families” . In order to qualify for a subsidy, a family must meet the following requirements:
- the age of each spouse should not exceed 35 years;
- the total area of your own real estate does not exceed 15 square meters for each family member (including children);
- both spouses are citizens of Russia;
- the ability to document the total income (for a family without children it must be at least 21,000.00 rubles; for with one child - at least 35,000.00 rubles; with two or more children - 43,000.00 rubles).
The subsidy amount can be up to 30% of the cost of purchased housing for families without children and up to 35% for families with children. Documents must be sent to the municipal administration (Property Management Committee or Youth Affairs Committee).
Based on the review of the documents, the family is issued a certificate, which can be used both to pay the first mortgage installment (own funds, accordingly, can be used for early repayment of the principal debt), and to repay an existing mortgage loan.
Attention
The certificate is issued strictly for the purchase of housing in the same region.
It is also possible to receive additional assistance from the state to pay off your mortgage under the Military Mortgage program. Its implementation is regulated by Federal Law No. 117 of August 20, 2004. According to it, for each serviceman who has served for more than 3 years, an individual savings account is opened, to which financial assistance funds for the serviceman are transferred quarterly from the federal budget. These funds are invested and generate additional income.
Upon transfer to the reserve, with 20 years of service, or the occurrence of certain events specified by law, the serviceman has the right to use these funds to pay the mortgage.
The funds are not given free of charge, but as an interest-free targeted loan. That is, savings arise only on interest payments to the bank.
You can use military savings account funds only in those banks that provide the Military Mortgage program. The loan is issued by the Federal State Institution “Rosvoenipoteka”.
In addition, according to Decree of the Government of the Russian Federation dated August 11, 2017 N 961, the state (through the DOM.RF bank, which was called AHML) compensates banks for losses during the restructuring of mortgage loans if the borrower:
- have minor children or full-time students under 24 years of age;
- income decreased and the monthly payment amount amounted to more than 30%;
- the payment amount increased due to an increase in the exchange rate (for foreign currency loans) and some other cases.
In fact, the creditor bank, since it receives compensation for its losses, does not have the right to refuse restructuring (rate reduction, currency change). The borrower can also use the saved funds to repay the loan early.
IMPORTANT
Under the refinancing program at the expense of the state, it is impossible to reduce the loan term.
Which annuity or differentiated payments are more profitable?
+'Advantages of annuity payments
The advantage is stability, thanks to which the borrower always knows exactly the amount of the monthly payment and can plan expenses more accurately.)
Disadvantages of annuity payments
However, there is also a flip side to the coin. This type of payment is less profitable for the payer, who is forced to overpay a substantial amount for interest. In addition, these conditions are not beneficial in case of early repayment of the loan.)
+'Advantages of differentiated payments
So, a significant advantage of this type of payment is the opportunity to save significant money. )
Your loan has been approved!
Disadvantages of differentiated payments
The downside of differentiated payments was the need for large expenses aimed at initial loan payments. )
What is the difference between annuity and differentiated mortgage payments - which type of payment to choose?
- Annuity payments are unchanged throughout the entire loan period. The mortgage will need to be paid in equal monthly installments. With differentiated payments, you will have to pay much larger amounts in the first months than in subsequent months. That is, the amount will decrease every month - this is due to the fact that interest is calculated on the balance of the unpaid loan, which is constantly decreasing.
- In a situation with annuity payments, a person always knows how much he needs to pay monthly. With differentiated payments, the borrower will need to clarify every month what amount needs to be paid this time.
- With differentiated payments, the first loan amounts will be greater than with annuity payments . Therefore, to obtain a loan with the terms of a differentiated payment scheme, the borrower’s solvency should be approximately 20-25% higher than in the case of an annuity scheme. In the last months of the loan under the differentiated scheme, payments will be less than under the annuity scheme.
When choosing the type of mortgage payment, experts advise taking into account:
- The current state of affairs in your finances - what payments you can make right now.
- First of all, it is still necessary to pay attention not to the type of payment, but to the interest rate on the loan.
Ideally, you need to find a loan with minimal interest and a differentiated payment scheme.
The legislative framework
In a sea of different laws, one can single out those that directly regulate mortgage relations. The creation of a legislative and regulatory framework is the primary mission of the state in the establishment and development of residential mortgage lending, reducing risks for banks and borrowers, and increasing the availability of mortgages.
- Thus, the legislative framework for mortgages includes:
- The Constitution of the Russian Federation of December 12, 1993, which enshrines the rights of citizens to housing and the protection of private property.
- Federal Law of July 16, 1998 No. 102-FZ “On Mortgage (Pledge of Real Estate).”
- Federal Law of July 21, 1997 No. 122-FZ “On state registration of rights to real estate and transactions with it.”
- Civil Code of the Russian Federation (Articles 37, 131, 209, 246, 260, 329, 365, 387, 488, 855, 935), establishing general rules for securing loans secured by real estate, provisions on ownership and other proprietary rights to premises; grounds for foreclosure on mortgaged residential premises, etc.
- Letter of the Federal Tax Service of the Russian Federation dated June 9, 2005 No. 14-1-05/1884 “On property tax deduction.”
You may be interested in: “Mortgage without a down payment - accessible and concise”
What are the risks of late mortgage payments, and how to avoid them?
Due to various circumstances, it may happen that the borrower does not make payment on time. What could this mean for him?
Everything depends, first of all, on the period of delay.
A delay of one or even five days does not threaten anything serious. True, the bank will certainly charge a penalty, according to the terms of the agreement, and the borrower will be forced to overpay. The penalty is usually a maximum of one percent per day of the monthly fee.
If the delay lasts more than one week , bank employees begin calling the debtor in order to remind him of the need to repay the debt, and also to find out the reason for the delay. At the same time, the penalty grows day by day and can significantly increase the payer’s expenses. In addition, in the current situation, the bank is forced to add the debtor to the “black list” of the credit history bureau, which will certainly ruin the borrower’s reputation and it will be difficult for him to get a loan from any bank in the future.
In this situation, it is extremely important to make contact with bank employees; they will offer optimal ways to solve this problem and help with an alternative payment scheme. It is important to understand that you should not hide from the bank, as this can lead to more serious problems.
If your mortgage is overdue for more than a month, it can lead to big troubles. The bank's security service begins to look for the debtor. During an in-person visit, the future fate of the mortgaged property is decided. There are two possible scenarios here. The optimal solution to the situation may be a loan restructuring and, accordingly, a new payment schedule. Or the bank will be forced to sell (sell) the housing in order to repay the loan debt.
In such a situation, it is better to voluntarily sell the home by agreement with the bank, otherwise during legal proceedings you will have to spend an additional considerable amount equal to seven percent of the collection amount. After selling the property, the bank repays the borrower's debt, taking into account fines and other costs. If after this there are some funds left, the bank either buys a smaller home to the borrower or returns the difference to him.
What is needed for the calculation?
Calculating your monthly mortgage payment is actually not difficult. To do this, you need to know the diagram, have some mathematical abilities, and be able to use a calculator. Information is required about the cost of housing and the amount of interest on the down payment set by the bank. This money must be on hand to make a one-time payment.
A prerequisite is to decide on the term for which the mortgage loan is taken out. Many people take it for a long time, because it is very profitable, even taking into account inflation.
You also need to know at what rate the loan is taken and whether insurance will be required. It is important to know about the types of debt repayment, of which there are two:
- Differentiated. In this case, the monthly payment decreases gradually at the end of the loan period.
- Annuity. With this option, the amount of the repaid monthly debt remains equal and unchanged throughout the entire loan period.
How to avoid default on your mortgage?
In order to avoid loan delays you must follow the following recommendations. Monthly payments to the bank should be a priority expense item.
Based on this, it is necessary to plan a budget. All other expenses, no matter how urgent and important they may be, fade into the background. It is also necessary to set aside an emergency reserve in the amount of several monthly payments, in case of unforeseen circumstances.
If insurmountable circumstances arise , you should not remain silent and hide from the bank ; on the contrary, you need to come to its employees for advice and help. They will help you find the best way out of the current situation. In the event of litigation, such behavior tactics will turn favorably in favor of the borrower.
conclusions
Mortgage lending is one of the main tools for purchasing real estate, which has many advantages, but it is also not without pitfalls. Before you take on a long-term loan obligation, a mortgage, you need to soberly assess your capabilities and future risks, then you can become full-fledged owners without problems.
If you are interested in the question of when is it more profitable to buy housing in the near future, you can listen to the opinion of the Marketing Director of the Third Rome Construction Group.
