The decision of the European Central Bank to keep interest rates unchanged and the increase in mortgage prices They tend to reopen a recurring debate among mortgage holders: is it advisable to repay the loan as soon as possible or is it preferable to allocate that money to savings or investment?
To help, financial expert David Ramírez addresses in one of his videos one of the most common doubts among mortgage holders, such as alleged advantage of advancing payments on a loan structured under the French amortization system, a model used in around 95% of mortgages in Spain, as he explains.
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Ramírez maintains that neither reducing the term nor the fee is necessarily the best decision when the real effect it has on the interest paid is analyzed: “In the first years, the fee that we are going to pay goes more than anything to pay the interest. Therefore, which would be better? Neither of the two,” he says.
Is it more profitable to pay off the mortgage or invest the money?
To illustrate, Ramírez presents the case of a mortgage of 200,000 euros, for 30 years and with a fixed rate of 2.5%, whose monthly payment is about 790 euros. If the owner decided to amortize an additional 300 euros each month, explains the specialist, “especially in the first years, almost all of it would be to pay interest and not for the loan itself.” Furthermore, he adds that “you would be decapitalizing yourself” and would lose the ability to generate returns with that savings.
As an alternative, the expert presents the strategy of allocating those same 300 euros per month to an investment with an average profitability of 8%, a figure that he attributes to the evolution of the global economy since 1987. Ramírez points out that “not everyone has that investor profile” and remembers that to access these products it is necessary to carry out an suitability test.
According to the graph shown in the video, the line corresponding to the invested savings and the line for the outstanding balance of the mortgage converge in year 16. From that moment on, he explains, the person would have “enough capital to amortize the remainder of the mortgage at once” and save 14 years of future payments, which would be equivalent to “almost 78,000 euros in interest.”
Ultimately, choosing between amortizing or investing requires understanding how the mortgage works and assessing whether that money can generate more returns outside the loan. Ramírez emphasizes that there is no single answer, the decision depends on the profile and the risk that each client is willing to assume, which is why many opt for the security of reducing the term or fee.
The Law 5/2019, regulating real estate credit contractsallows you to partially or totally amortize the mortgage, although the conditions depend on each bank. Ramírez adds that not all clients can access products with the 8% profitability that he uses in his example, so the strategy must be adapted to the financial situation of each person.