Is longer credit favorable?
In the case of mortgage loans, the matter is not as simple as it seems. As a rule, a longer loan period is more favorable. It automatically means a lower value of the monthly loan installment because the amount we have to pay back is spread over a longer period of time. This has some consequences.
This allows you to increase your creditworthiness, which in some cases may be strategic in obtaining a loan, especially in view of the current Recommendation S. However, we must bear in mind that as the loan extends, the total cost of the loan increases, or in the end we will give more to the bank.
However, with such a large commitment as a mortgage, we often simply have no choice. We also need to keep in mind certain limits, such as the borrower’s age at the time of repayment. Most often it is 70-75 years old. For example, a 68-year-old person will not get a loan for 25 years, because in practice no bank will take such a risk.
Is it always worth paying off the flat longer?
It’s best to choose a bank that doesn’t charge an early repayment fee. Then, deciding to extend the loan time, we can have a low installment, but with the possibility of higher payments, which gives us security in the event of unexpected situations that could strain the household budget.
If the bank charges fees (within the first years or throughout the loan period) and we do not plan to pay back the loan earlier, it will also be best to lower your monthly installment and choose a longer repayment period. However, it should be remembered that – for safety – the value of the monthly installment should not exceed 40% of our household’s net income.
If you decide to take out a loan in a foreign currency, it is definitely safer to choose the same option as for a mortgage. The longer the repayment period, the lower the risk associated with changes in exchange rates. Therefore, it is worth determining the installment and loan parameters in such a way that even a significant increase in the sale rate or reference rate does not disturb the timely repayment of the liability.
And what about cash loans? It is true that the monthly installment when extending the loan repayment is relatively low, but looking at the total cost of the loan with interest, choosing a shorter period is more profitable, which results not only from a simple calculation. In many banks, loans granted for a shorter period bear interest at a lower rate.
In addition, the extended repayment period brings, apart from worse interest rates, additional fees such as life or unemployment insurance. Repayment of the loan in the short term allows you to take another loan or increase the amount with the extension of the period.