There are several options in the market for those who are interested in saving money. Deposits, high-interest accounts, mutual funds and equity investments are all common savings options. But for those who have significant debts, early repayments can be the best savings tip.
Since the lending rate at banks is many times higher than the deposit rate, it is usually more profitable to settle the loans first instead of setting up a savings account.
Get more money over through amortization
Most money can be saved on solving different types of short-term loans. Loan forms with fast disbursements and short maturities usually have exceptionally high interest rates. By redeeming small loans, your household will receive more financial resources each month.
The next step is to repay the mortgage and the bank loans. At present, many Swedes have large mortgages, but not all of them regularly pay off their debts.
The fact that not everyone pays off on their home loans is largely due to the fact that banks have not chosen to propose that the loans be repaid. Relatively few Swedbank customers pay off their debts. These two banks have actively chosen to recommend their customers to save in funds instead of making repayments.
Why doesn’t everyone pay off their loans?
Even though mutual fund savings with a hand in hand has been a more profitable alternative if you look a few years back in time, it is not at all certain that it is a better choice in the future. The truth is that stock / fund saving instead of amortization is a risk-taking.
Several of the bad at demanding that their customers pay off their mortgages. A recent survey conducted by TNS Sifo shows that three out of ten high-mortgaged households do not repay mortgages. Among banks with state ownership, the larger percentage share in this category pays off their debts and only 10% of the high-mortgaged households do not repay at all.
Ironically, it was Swedbank, that is, one of the banks that was singled out as the worst for getting their customers to repay, which in October said it wanted to introduce a law that forces bank customers to repay. Below you will find a feature on the amortization problem from Sweden’s radio:
Good reasons to pay off debt
There are several good reasons to prioritize repayment on the loans. First of all, it goes without saying that if you do not pay off your debts, you will never be debt free. This means that you never ever fully own your house and that in the long run you will be forced to pay significantly much more interest compared to if you continuously pay off your loans.
Having large debts also poses a great risk to the household. Paying the interest rate continuously as long as you have a permanent employment and the interest rates are low may not be that difficult, but what happens if the conditions change. There are a couple of snapshots firmly rooted in society that many do not really understand the severity of a high leverage ratio:
- House prices are always rising . There is a widespread notion that housing has a form of intrinsic value, which is not significantly affected by any changes in our economy. Investing in housing is said to be one of the safest and best forms of return. While this is true if you look back 20-30 years in time, there is nothing to say that the price of housing will be constant or less increase in the future.
On the contrary, there is much to indicate that housing prices will be pushed down. If this happens, the banks will be worried because households’ assets will be revalued very quickly and suddenly we have a much higher loan-to-value ratio in our country.
- Mortgage rates will always be low. Unfortunately, there are no guarantees at all as to what levels mortgage rates will be in the future.
- I have work, so I can do it . Nobody knows what the future holds for us and there is of course no reason to paint it in dark colors, but at the same time, many experts believe that unemployment will increase in Sweden in the future.
Assuming that you will always have the same opportunity to pay off your debts is a great risk-taking Many different things can happen, which change and impair our ability to pay our bills. Loan protection reduces these risks, but it is equally important to try to reduce the debt burden when you actually have financial opportunities.