Term vs. Payment? Survival Strategy in an Unstable Economy

Classical financial mathematics says: "Shorten the loan term to save maximum interest". In stable economies (like Germany or the US in the 90s), this is true.

In volatile economies, where economic crises happen every 5-7 years, this logic can lead to bankruptcy.

The Problem: Risk of Income Loss

If you shorten the Term, your monthly payment remains high (e.g., 50,000 rubles). You are obligated to pay this amount no matter what happens.

If you lose your job tomorrow or income drops, the bank won't care that you saved them interest in the future. They need the payment now.

The Agitation: The Liquidity Trap

Imagine: you have 100,000 rubles of free money.

• Option A (Term): You pay off debt, term decreases by 3 months. Payment is still 50,000 rubles. You have no money.
• Option B (Payment): You pay off debt, payment drops to 45,000 rubles. You have no money, but the obligation has become smaller.

In conditions of uncertainty, a low mandatory payment makes your family budget "antifragile".

The Solution: Hybrid Strategy

We propose the "Hybrid Method":

1. Always choose the option "Reduce Monthly Payment" when prepaying.
2. BUT (and this is critically important): Continue to pay the old amount as long as you have a job.

Example: Payment was 50k. Became 45k. You continue to pay 50k (5k goes as new prepayment).

Mathematically, you pay off the loan just as fast as if you were shortening the term. But if a crisis hits, you have the right to officially pay only 45k. You bought yourself flexibility for the price of one application to the bank.

📱 Simulation in Amorti

Check this strategy.

1. In AmortiApp, enter the loan.
2. Make an early payment and select "Reduce Payment".
3. See how the mandatory burden fell.
4. Now add a regular "Extra Payment" for the difference.

You will see that the loan term will shorten just as radically.

Safety first. Manage risks.

Calculate Payment Reduction