One of the most frequent queries that we receive in the contact form of financial expert is on what is better if to amortize capital or to save and to invest. The answer is how many of those we left in our advisory work. It depends on the type of mortgage on what year it was built whether or not it is about our usual home and above all depends on the interest rate and the renewal differential on the Euribor.
Is it better to amortize mortgage or invest in a savings plan than we are saving? Although you have to analyze the main characteristics of each mortgage and the financial situation of each owner there are some general rules. The first rule is to take advantage of the tax relief offered by mortgages: We can deduct 15% of the fee we pay annually mortgage, up to a maximum of 9,040.
For mortgages signed since January 1, 2013, there is no tax relief so we do not benefit from tax for early amortization of mortgage. Should it be amortized more than the maximum taxable for those prior to 2013 or amortize in advance for subsequent ones? As a rule of thumb if the mortgage interest rate we are paying is less than the profitability that we can get by investing our savings, then it is not advisable to amortize mortgage in advance more than the maximum that allows us the deduction.
Why are we going to give the bank back to that 1 or 2.5% when we can get more than 3% by investing in a diversified way? Obviously if the option is to leave the money in a current account at 0% or leave it in a drawer it is more profitable to write off in advance but if we invest in a diversified way is a very good option to allocate part of our savings to create a plan saving to create your own piggy bank.
So if we want, the mortgage instead of lasting 25 years we can cancel it in year 11. By only managing and investing our savings well, instead of 25 years, the mortgage could last only 11 years. In case capital has been amortized early, the mortgage could be canceled in year 13, with the difference that in this case, there is no possible choice and we cannot allocate the piggy bank that we have been creating in the savings plan to other objectives.
As interest rates are, now as a rule it pays to create a piggy bank of its own that will give back to the bank in advance the capital it loaned us when buying the house. We have to analyze each case in detail and see, which savings plan could be implemented see which product is the most appropriate to make our savings profitable according to the situation and the monthly savings each family can have.