Last week I expanded on the method of calculating a mortgage called the Spitzer Foundation (which is the most common in the banks) and before I start talking about the next post, I would like to clarify two important points about the last post. More exposition at http://wrtc2006.com
- I received many responses that the calculation of the top example was not done correctly – first of all thank you very much to everyone who sent it and he is right. My idea was less to go into and study the mathematical part of the subject, but mainly to explain how the method works “big” without getting into annoying calculations.
- There were also comments that claimed that I had spoken against the system and perhaps even slightly “killed” the banks. Again, this was not the intention, but rather the main intention of the post was to emphasize that the Spitzer system has a great deal of weight to change the loan. As long as the years so that the rate of disposal of his fund will be faster and thus interest payments will eventually be lower.
Well, after clarifying a few things, I would like to write about the next subject, which is the equivalent of the Spitzer method, which is equal.
So what is an equal fund?
Unlike Spitzer, the return here is not uniform and constant for the entire period, but changes and decreases as time passes.
In other words, if you started with a refund of 5,000 NIS, the refund will start every month until you reach NIS 3,000 (for example, please note that this is only an example and the refund amount depends on the size of the loan and the number of years the loan was taken).
The basis behind the method is that each month a fixed amount of the fund is deducted (for example – NIS 2,000) and the interest rate decreases every month as the balance of the principal decreases.
Benefits of the method:
- The rate of repayment of the principal is much faster, because each month you remove a fixed amount from the principal (which is significantly higher at the beginning than the derivative) and therefore the fund goes away more quickly.
- The total interest payments will be lower than the Spitzer method, because the fund here is moving faster and so each year you will have a lower principal and lower interest payments.
- The monthly repayment – decreases over the years and becomes a “more convenient” repayment in the recent period of the mortgage.
On the face of it, it seems that the method is thousands of times better than the Spitzer method.
But as you know, not everything is perfect in life and here comes two disadvantages:
- High payments at the beginning of the mortgage – because you pay for the fund payment a fixed amount and higher each month in the first years, it requires you to pay more money in the first period of the mortgage (relative to Spitzer) and you will not always comfortable with it – despite the fact that within a few years this repayment For example, a loan of NIS 1 million for 30 years at 3% interest in the Spitzer method will cost you approximately NIS 4,200 per month (on a regular basis), while the same loan will be NIS 5,300 (NIS 1,100) More) and will eventually drop to about NIS 2,800.
- Not all the banks and not all the tracks can take an equal fund and therefore your possibility to create broad negotiations between several banks is declining.
Who does the method fit?
- Such as those who will retire / study / lose current income / planned for additional expenses, etc.).
- For those who can afford it and have no “problem” with their monthly repayments, they can start a high monthly repayment now and want the refund to slow down. If you do not want the refund to decline, it is better to take Spitzer for a shorter period.
In conclusion ,
On paper, this method is preferable to the borrower (in the end, he will return less money to the bank), but since it is not very common and since we do not always need a refund, there is no need to be locked on this method, as I wrote above, only if there is a real need The years then this method gives a perfect solution. If not then I would have reduced the years in Spitzer as much as possible and remained with a fixed repayment over the years (but with shorter years in mortgage).
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