A big advantage of paying off the loan faster is that you pay less interest to the bank. A small down payment can shorten the term of the loan by several years, say bankers with whom HotNews spoke.

Calculation example: Loan of 50,000 euros taken for 25 years

Let’s take the case of a loan in lei, which is equivalent to 50,000 euros, that is (rounded) 250,000 lei. Loan term: 300 months (25 years), granted on July 1, 2017. Calculations in this case are carried out by Raiffeisen Bank.

Interest on the grant was 3.77%, consisting of ROBOR (1.02% as at 30 June 2017) + 2.75% bank margin.

After 5 years (winter 2022), the balance of the loan was 213,816 lei, and the repayment period was reduced to 235 months.

Current interest increased to 9.04% (ROBOR 6.29% + margin 2.75%).

If the borrower paid 5,000 lei in advance, Amount of repayment in advance: 5,000 lei, according to the bank’s calculations, the remaining term of the loan is reduced to 163 months.

Therefore, an advance payment of 5,000 lei leads to a reduction of the term by 72 months (6 years)

A few things to consider before making your down payment

Before making an advance payment to make things easier with the bank, make sure of a few details:

1. That you have an emergency fund to cover at least 3-6 months of expenses. Don’t use your last savings to make extra bank payments. Consider that you may get sick or, God forbid, lose your job.

2. It would be good to use other types of savings – government securities or other investments – that will provide you with a net of financial comfort. You have other forms of savings – such as an RRSP or TFSA

3. Don’t have any other debt with higher rates than what you are paying at home. If you have such debts, use the 5,000 lei from the example above to pay off the largest debt.

4. Make sure your early payment doesn’t jeopardize your other financial goals, such as money for your children’s education or other investments you wanted to make.c

Is inflation good news for my credit?

At first glance, inflation seems like bad news for anyone. The exception is one category of people: cxe fixed rate borrowers.

For those who took out a loan with a fixed interest rate, inflation means that the share of the rate in the income decreases as the salary increases.

In the short term, the result of inflation will still be a loss of purchasing power, but with a minimal increase in wages, there will also be favorable effects in relations with the lending bank

Example: Let’s say that your current rate is 100 lei and your salary is 1000 lei (to make the calculation easier). If inflation is 10%, and your salary has increased to 1,010 lei, then the share of the rate (the remaining 100 lei) decreases from 10% to 9.9%. If your salary rises with inflation, the rate weight will drop to 9.09%.