Mortgages Amortization of Your Mortgage
What does "amortization" mean and what do I need to know about it? There are also different benefits for each repayment model. Find out here what you need to note for your mortgage amortization.
"Amortization" describes what is commonly referred to as paying back a mortgage. Amortization involves paying back a mortgage in equal installments at regular intervals.
When Is a Mortgage Amortized?
There are specific rules for this: unlike with a first mortgage, there is an obligation to amortize a second mortgage. It must be repaid within 15 years, and no later than the borrower's 65th birthday. In both cases, if a mortgage is paid back earlier than contractually agreed, the interest still needs to be paid back for the entire term. This means that an "early repayment" penalty has to be paid.
Types of Repayment
Generally speaking, there are two types of repayment: direct repayment or indirect repayment. The best way to determine which of the two is more suitable for you is to talk with our financing experts. They will provide you with specific advice.
Under direct repayment, a mortgage is paid back gradually as agreed in the contract, i.e. as installments. Not only is the credit amount reduced by this after each payment; the interest expense also decreases. Your tax burden increases because the amount you can deduct from your taxes is also less – assuming that the interest rate remains the same.
Under indirect repayment, the amount is saved under the third pillar and used as collateral for the mortgage, i.e. pledged. This kind of mortgage is repaid within 15 years, or no later than the borrower's 65th birthday. The advantage of indirect repayment is that not only is the entire mortgage debt tax deductible, but deposits into the tied pension provision are also relevant for tax purposes.
Repayment in Old Age
Anyone who repays their mortgage too quickly risks having financial constraints in old age. By voluntarily repaying, their money is tied up in the property and is no longer readily available. Increasing a mortgage later on during retirement is more difficult. Our financing experts will take a look at this issue with you as part of your financing solution.