Year-end bonuses and New Year's money paid early to pay off the mortgage? Not impossible

Changsha Evening News Palm Changsha, February 22 (All-media Reporter Sun Zhanfeng) How to better use your year-end bonus and your child’s New Year money? The holiday is not over yet, and many families, while visiting relatives and friends, are also starting to review their idle funds. During interviews, it was found that early repayment of the mortgage has become a popular choice among those with monthly payments, and some are taking advantage of the holiday to make appointments via mobile banking, planning to use this “Spring Festival windfall” efficiently after returning to work.

“This year, I received a 50,000 yuan year-end bonus, and my child’s New Year money saved over 10,000 yuan. Plus what I’ve saved over time, I have about 80,000 to 90,000 yuan to make an early partial mortgage repayment.” Ms. Chen, who lives in Kaifu District, Changsha, said she plans to buy a commercial property in Yuelu District in 2024, with a bank mortgage of 680,000 yuan over 30 years, with a monthly payment of over 3,000 yuan.

“Seeing the idle money in hand, it’s better to pay off part of the mortgage first to reduce long-term pressure.” Ms. Chen’s idea is inspired by the successful experience of her colleagues. Over the past few years, her colleagues have used the strategy of “repaying early with idle funds,” saving their annual year-end bonus and other spare funds, making installments of 30,000 to 50,000 yuan to repay early. “At the end of last year, my colleague paid off the remaining mortgage early. After calculations, they saved over 100,000 yuan in interest, and shortened the repayment period by 10 years.” Ms. Chen explained.

“In fact, the method of early repayment of bank loans can be negotiated and chosen.” A senior financial expert who wished to remain anonymous told reporters that most commercial bank loan contracts include provisions for early repayment. The specific options usually include “keeping monthly payments unchanged to shorten the term” and “reducing monthly payments while keeping the term the same.” Taking Ms. Chen’s early repayment plan as an example, choosing the former means monthly payments stay the same but the loan term shortens; choosing the latter means monthly payments decrease but the loan still lasts 30 years.

It may seem similar, but it’s not. According to the bank loan contract, after early repayment, interest is calculated based on the remaining principal. “Keeping monthly payments the same and shortening the term” can directly reduce the time the principal is outstanding, thus reducing interest accumulation at the source; while “keeping the term the same and reducing monthly payments” only lowers the monthly repayment burden, but the interest calculation cycle on the principal remains unchanged. For homebuyers, the difference in interest expenditure can be significant.

Considering the current mortgage market in Changsha, the first-time home loan interest rates generally range from 3.35% to 3.55%. While early repayment is cost-effective, it requires rational decision-making and financial capacity.

Some banks set a “default period” for early repayment, ranging from half a year, one year, to three or five years. If repayment is made during this period, a penalty fee may be charged. “Homebuyers should first check their loan contracts to confirm whether they meet the conditions for exemption from penalties; if the mortgage rate is low and there are investment channels with annualized returns exceeding the mortgage rate, early repayment may not be urgent,” the expert also reminded. Homebuyers should also consider their own family’s actual situation, including daily expenditure pressures and future repayment ability, to make suitable choices.

“From ‘saving to buy a home’ to ‘rational debt reduction,’ it reflects the maturity of financial concepts among Changsha residents,” said industry insiders. Using year-end bonuses and New Year money to repay mortgages early is not a conservative choice but a pragmatic plan aligned with people’s livelihoods. For ordinary families, avoiding blind followings, accurately managing risks, and making idle funds work to reduce burdens and increase efficiency are the safest ways to manage wealth.

【Author: Sun Zhanfeng】 【Editor: Xiao Juan】

【Source: Palm Changsha】