How to save up with your home loan
Do you save up with your mortgage? Both repayments and capital gains can help you get rid of residual debt faster. Choose the right loan and don’t come too late.
Low interest rates make it easy to withdraw debt
The very low interest rate has made it possible to withdraw very quickly on your residual debt. The interest does not take up so much in the service, so can afford to pay off more than in previous periods when the interest rate has been more normal.
The contribution has probably increased relatively much because mortgage companies have raised their prices. This has allegedly been done to increase the companies ‘capital adequacy, but it is probably at least as much about increasing their own and the banks’ earnings. In spite of this, you can benefit from paying off more on your loans instead of spending on something else.
If you have maintained your service and have taken advantage of the 5-year low interest rate to withdraw more from your mortgage, you have reduced the maturity of your loans by 10-15 years.
Course gain by redeeming mortgage loans
After a long period of low interest rates, may it be time to consider what happens when interest rates rise again?
If you have interest rate adjustable loans, your loan is unrecoverable. This means that you can only redeem the loan by its expiry or by offsetting the purchase of the underlying bonds. It does not have the great importance in periods when the interest rate rises because the price of the bonds will then be below 100. However, in periods when the interest rate falls, you risk having to redeem an invariable loan at a price well above 100. Convertible loans can always be redeemed at price 100 after expiry of a term of notice.
Your any capital gain by redeeming a mortgage loan is tax-free for bond loans, while the gain is taxable for cash loans. Interest rate adjustable loans are cash loans, while the 20-30 year fixed rate loans, which are the most common mortgage loans to private individuals, are callable bond loans.
Larger capital gains on long mortgage loans
Another consideration of this applies to price sensitivity. The longer the interest rate is locked on your loan, the more price sensitive it is. This means that you must choose a bond loan with the longest possible maturity, fixed interest rate and interest-only interest if you want to speculate on the possibility of tax-free capital gains on your mortgage loan.
If the interest rate rises by, for example, 2 percentage points over the next few years on the long loans, then the price will typically fall by up to 10 points. Thus, you can redeem a loan of 1 million, admitted at a price of 100, to DKK 900,000 and this gain is tax-free.
Fixed or variable rate – what type of loan should you choose?
Good opportunity to speculate in interest rate increases
You can therefore speculate in interest rate developments with your mortgage loan and increase savings in your finances if interest rates develop in one direction or another. This option is most attractive when interest rates are lowest, because here is the probability that interest rates will increase most.
Of course, it is not certain that it is relevant to you right now, but it is good to remember the next time you consider adjusting or rescheduling your loan.