Paying off a mortgage ahead of schedule isn’t always the smartest move, especially when viewed through the lens of long term financial planning. In a discussion with Lenta.ru, Evan Golovanov, a recognized finance and investment expert, shares nuanced insights on how the cost structure of a mortgage evolves over time and when early repayment might or might not make sense for borrowers in North America and beyond.
The core idea is straightforward but often misunderstood. At the outset of a typical mortgage, a large share of each payment goes toward interest, while only a smaller portion reduces the principal. As time passes, the balance shifts. The principal portion grows, and the interest component shrinks, altering the value of every payment. This shift matters because it changes the financial payoff of paying off the loan early. In other words, early on, voluntary extra repayments can have a meaningful impact on overall interest paid, but later in the term, the incremental benefit of reducing the principal declines as more of the ongoing payments already contribute to the principal reduction.
Golovanov explains that if a borrower has the means to fully retire a loan, especially in the early years of the mortgage, doing so is a perfectly acceptable option. However, he cautions that in the later stages—such as after seven years of payments—the financial payoff of a full payoff may be less favorable. By that point, a significant portion of interest has already been paid, and settling the loan early essentially uses the borrower’s own money to cover interest that the lender has already earned. This is a subtle but important distinction for households weighing alternatives to liquidity and diversification. The practical takeaway is that a full repayment late in the term can tie up funds that could be better allocated elsewhere, depending on the borrower’s broader financial goals and risk tolerance [Citation: Golovanov interview with Lenta.ru].
To illustrate the potential better use of funds, Golovanov suggests considering investments that could yield steady returns. For example, placing money in government-backed or federally issued securities with known returns might offer sources of income that compete with or exceed the ongoing interest savings from a rapid payoff. In the current environment, he notes, certain fixed-income options have historically delivered attractive yields relative to the cost of remaining debt, making diversification an appealing strategy when evaluating how to allocate cash that would otherwise go to the mortgage [Citation: Golovanov interview with Lenta.ru].
Partial loan repayment is another tactic. Rather than paying off the entire balance, borrowers can apply extra money toward the loan in ways that reduce their long-term cost while preserving liquidity. For instance, a borrower who receives a year-end bonus might choose to lower monthly payments or shorten the loan term. Each path has distinct consequences. Reducing the monthly payment can ease monthly cash flow without significantly shortening the loan duration, while shortening the term accelerates principal reduction and cuts total interest paid over the life of the loan. Golovanov emphasizes that borrowers should align their choice with personal financial goals and family responsibilities.
If the aim is to lessen the immediate financial burden, decreasing the monthly payment emerges as a prudent choice for many households. This approach preserves more disposable income for emergencies, savings, or investments, without locking up funds in a debt asset. On the other hand, when a borrower enjoys a stable financial footing and seeks long-term savings, shortening the loan term can be a powerful lever, reducing the risk of carrying debt into later years and lowering total interest costs over the life of the loan. The recommendation centers on clarity of goals, not a one-size-fits-all rule. Each borrower’s situation dictates the optimal strategy [Citation: Golovanov interview with Lenta.ru].
Meanwhile, there has been notable activity in the housing market in Russia, with demand for secondary apartments rising in October. The increase stood at 15 percent versus September and 46.8 percent compared with June, according to Ildar Khusainov, director of the federal real estate firm Etazhi. He notes that buyers are seeking properties to secure loan agreements under terms that existed before recent hikes in mortgage rates. This trend reflects how borrowers respond to shifting financing costs and availability, a pattern that resonates with broader market dynamics in North America as well, where mortgage costs and terms can influence demand for second homes and investment properties [Citation: Etazhi market update].
In related coverage, reports have highlighted the evolving challenges of securing mortgages under the current conditions in Russia, underscoring a common theme across markets: borrowing costs, payment structures, and long-term financial planning intersect in meaningful ways for households considering homeownership options today.