Is your company doing well at the moment? That is, of course, good news. The question remains what you are going to do with your extra income. Saving is always good, spending is - shall we say - sometimes good. But you may have already thought about paying off your business mortgage early. After all, you will be debt-free sooner and your future income will end up directly in your own wallet. Or it doesn't work that simple?
Can I repay without penalty?
An extra or early repayment - is it penalty-free? Well - that depends on your lender. Large banks are usually a bit more conservative in this and therefore charge an extra amount if you want to pay earlier.
Because most SMEs do not qualify for a mortgage with a major bank, chances are that you have partnered with an alternative financier. And they are very flexible in their conditions. That is why extra repayments or early repayments are usually not a problem and can usually take place without penalty.
“ SME companies with a business mortgage with alternative financiers can usually make early or extra repayments without penalty. “
Some conditions that some providers set are:
- The additional repayment must be announced an x period in advance;
- The extra repayment may only be transferred in amounts with a multiple of € 1,000;
- The extra repayment cannot take place in the first months or sometimes years of the term.
Repay early: to do or not to do so?
The first step that every entrepreneur should take in such a situation is to ask yourself whether you want to pay off your business mortgage. You determine that, somewhat naturally, on the basis of your financial situation. Early repayment is attractive when you generate a lot of income, but it is more important whether this income is also stable. In other words: do not start paying off your mortgage after one month of higher income. It's nice if this is possible, but not if you end up in financial trouble as a result.
In addition, it pays to keep a close eye on interest rates. When they fall, it may be interesting to repay early. When they rise, they certainly are not. You are better off with the relatively lower rates.
Another thing to keep in mind if you are considering early repayment is the impact of other debts, separate from your mortgage. Credit card debts, overdrafts or (periodic) payment of business supplies, for example. This type of debt is usually associated with higher interest rates than your business mortgage. In that case it is therefore more sensible to first repay those amounts, if you have an increase in income.
In cases where it is advisable to pay off a business mortgage earlier, a lot of money will of course be released. You spend less each month on the pricey mortgage costs and that makes your business more profitable in the longer term. Moreover, it provides a lot of peace of mind when you know that your property has been completely paid off. But the unofficial conditions are that you have extra income for a longer period of time. As soon as you feel that you are on a pile of money that has no further purpose, that seems to be the case.
How does early repayment work?
The most ideal way to pay off your business mortgage is to shorten the loan term and then transfer the additional payments. Finally, the shorter the term, the less interest you pay. Of course, this means that you transfer higher monthly payments (or do this once).
It is also possible to repay faster, but in a slightly less rigorous way. You then pay a little more per month in repayments, but you are off your mortgage months, or sometimes even years earlier. And that while your monthly expenses remain comfortable for you.
Extra transfers to make early repayments are done by transferring an additional amount to the same account that collects the monthly mortgage payment. The bank or mortgage lender may set limits on the amount to be transferred. Check this Prior to with Your lender.
Most mortgage lenders allow you to repay earlier. It is also possible to transfer your mortgage to another provider.