Is it worth paying off the mortgage if I have savings

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For many families, the mortgage is the largest debt they will take on in their lifetime. According to the Mortgage Statistics, prepared by the National Institute of Statistics , the average term of mortgages in Spain was 23 years in 2022. But, in some cases, this period may be longer, so that, in certain therealcircumstances, it may be of interest to repay it if you want to cancel the loan. Therefore, if you have savings or have received an amount of money, either because Belgium Phone Number List you won the lottery or received an inheritance, and you ask yourself this question, it is important that yo valuate different factors before making a decision . In this article, we will explore whether it pays to pay off the mortgage if you have savings, analyzing the financial and tax aspects that you should consider. What is the amortization of a mortgage? Amortizing the mortgage consists of paying the outstanding capital of the mortgage loan. Most mortgages are amortized by paying regular installments, also known as the French amortization system , over a set period of time, which can be 15, 20, 25, or 30 years. At first, most of the payment goes to pay the interest , but as the mortgage is paid off, more of it goes to pay the principal. As the principal is paid, the amount of interest paid decreases, allowing the borrower to pay off the mortgage faster. Most mortgages allow the possibility of amortizing a greater capital than the one obtained through the monthly installments , which allows the capital to be reduced much faster. It is the early amortization of the mortgage, which consists of canceling all or part of the capital. When should I pay off a mortgage if I have savings? The decision to pay off a mortgage early depends on several factors, such as the interest rate of the loan, the profitability of other alternative investments, the taxpayer's fiscal situation and his personal preferences. In general, it is recommended to pay off the mortgage when the interest on the loan is higher than the return that can be obtained by investing the money saved in another financial product. It is also advisable to repay in the first years of the life of the loan, since that is when more interest is paid and the tax deduction for habitual residence can be taken advantage of (if the requirements are met). Reduce the term or fee: what is better? When paying off the mortgage, you can choose between reducing the term or the monthly payment . In general, the most profitable option from a financial point of view is usually to reduce the term , since it implies paying less total interest and, in addition, it allows the debtor to be released before the debt. However, reducing the installment may be more convenient if you want to alleviate the monthly financial burden or if you anticipate a future rise in interest rates (in the case of having a variable rate mortgage ).