Avers Bank: how to save money on home loan?
Today home loan is the only opportunity for many people to improve their living conditions. But how to choose the most favourable loan or even to save money on it? Many people think interest rate is the most important thing while choosing a home loan. However, it is not the only factor. The deputy chairman of the board of director at Avers CJSC helps to find out what one should pay attention while choosing a home loan.
Not peanuts
There is sense in fighting for every interest. Initially, it seems some extra interest is rubbish. But one needs to look at not only the interest rate but also the sum of extra payment.
Attention should be paid to joint projects of banks and developers. For example, Avers has joint offers with Ak Tash-Invest CJSC, ZhBI-3 Factory PJSC. So a person can take out a home loan at a favourable interest rate to purchase a new flat in modern residential complexes.
By the way, a flat in a recently built apartment block can be bought on a loan with state support. The banks that take part in state programmes have cheaper loans.
Fixed or variable
There are two types of interest rates: fixed and variable. A fixed rate remains at a particular level during the entire period of loan payment. Use of a fixed rate is the safest option for a mortgagor because it allows to protect him from possible market fluctuations.
The amount of a variable rate depends on the state of certain market indicators, that is to say, it is dependent on the market conjecture. Particularly, there are programmes whose interest rate is oriented to the indicator of Central Bank's discount rate. The lower the indicator is, the lower a home loan's total interest rate is. Consequently, it means a smaller amount of a client's payments.
Despite all the advantages, such a loan is quite a risky business because it shifts the greatest share of interest risks to mortgagor's shoulders. And it is almost impossible to hedge against it during a long time. This option may be much more expensive than it was supposed when the agreement was signed.
Initial payment
The size of interest rate is directly connected with the amount of initial payment, which is a sum that a mortgagor is ready to pay on his own. Banks set the amount of initial payment themselves depending on the type of mortgage programme. As a rule, they fluctuate from 10 to 20% of the price of a property.
Banks are ready to reduce interest rates if initial payment increases. It happens because the sum paid as an initial payment is the guarantee of that, in case of default, the bank will be able to sell the property whose price won't be lower than the sum of the loan.
Payback plan
Payback plan of a loan plays an important role in calculating the price of a loan. Payments are divided into annuities and differentiated payments.
Annuity means a fixed amount of money paid to a bank each month. It formed from a part of the main debt and interest. And a focus is made on interest payment on the loan, which is the main share of payments during the first months. As time goes by, the share of interest in the payment reduces, while the share of the main debt increases.
Differentiated payment plan is different: the main debt is divided into equal parts (usually in months), and interest is collected in the sum of the debt. So loan payment reduces. At first a mortgagor spends much money that reduces with every payment he makes.
If we compare the two plans, on equal terms, the amount of the differentiated payments will be considerably higher during several years, compared to annuity. At the same time paying off loans by differentiated payments, a mortgagor will pay a fewer sum like interest on the loan because the reduction of the sum of the main debt is faster, compared to annuity.
Loan terms
Loan terms are another important factor that affects the sum of the costs on the loan. Before choosing a mortgage programme, it is necessary to assess your own abilities and try to calculate the best loan terms on your own. It is necessary to compare the amount of your own income with the size of monthly payments. Payment plan and their monthly sum will depend on the length of your payback period. The longer is payback period, the less monthly payments are. But extra payment is higher. This is why you should not aspire for an artificial increase of loan team without necessity. It will enable to save a big sum.
Tax deduction
13% of the price of a flat or the sum of interest can be returned. The money can be spent on loan payment. In order to get a tax deduction, one should present documents to the Tax Service: profit certificate, documents that confirm the purchase of a dwelling (purchase and sale agreement, acceptance and transfer certificate), documents that confirm you have the title to the purchased dwelling, bills.
To refinance a loan
Loan conditions change as time goes by. If interest rates reduced in the loan market, you can try to take out the loan on new terms.
You can also re-take a loan out in another bank. Refinancing is needed if the difference between interest rates is 1-2% or more. Avers Bank has a refinancing loan called Reset 2.0. Using it, one can pay off a loan that was taken out earlier whose initial purpose was a purchase of a ready flat in a block of flats/purchase of a house with a plot of land. The money also can be spent on the payback of a loan that was taken out earlier whose initial purpose was a construction of a house/home improvement secured on the existing property.