Thousands to save by shifting focus from the mortgage

On Thursday, the Riksbank is expected to announce another increase in the policy rate, which will impact the finances of many Swedes. The interest rate hikes of the past year have led more people to choose to amortize their mortgages to lower their costs. However, calculations by loan comparison service Sambla show that significant savings could be achieved by amortizing private loans instead – loans where the monthly cost is generally much lower, but the interest rate is often more than double.

In July, Swedes' total debts amounted to SEK 4.961 trillion, according to Statistics Sweden (SCB) – the majority of which were housing loans (83%). Private loans, i.e., unsecured loans such as renovation loans or loans for car purchases, accounted for only 6 percent of the total loans but represented about a quarter of the interest payments.

"Mortgages are often the single largest expense for households every month, so many choose to amortize these in times of economic uncertainty. However, if you also have private loans, it can be very beneficial to pay them off instead – our calculation example shows that there could be thousands to save," says Jasmin Svraka, Sweden Country Manager, Sambla Group.

The average interest rate for new mortgages is currently 4.49 percent, according to SCB. For new private loans, however, the interest rate is more than double – averaging 9.02 percent.

"As a borrower, you should have an overall view of your finances and think long-term. Amortize the loans with the highest interest rates – even if it doesn't make a big difference month to month, the effect will be much greater in the long run, and there is a lot of money to save," advises Jasmin Svraka, Sweden Country Manager, Sambla Group.

Calculation Example

Let's consider a borrower who can amortize their loans by SEK 2,000 each month. The borrower has a mortgage of SEK 1,500,000 with an interest rate of 4.49 percent and a private loan of SEK 200,000 with an interest rate of 9.02 percent.

If the borrower prioritizes paying off the private loan with the higher interest rate first, they will save SEK 498 in one year and SEK 4,757 over a three-year period compared to if they had chosen the mortgage. Over a five-year period, by prioritizing the private loan, the borrower would save SEK 13,775. By thinking long-term and choosing to amortize the right loan, there is a lot of money to save.

Please note that the calculation example does not take into account any potential amortization requirements or interest deductions, as these vary from case to case. All interest rates mentioned are nominal rates. The calculations also do not account for any changes in interest rates over time or other factors that could affect loan costs.

Jasmin Svraka's advice for those paying off their loans

Develop a long-term strategy based on the annual interest rate of your loans, including any fees. Start by paying off the loans with the highest interest rates. Typically, this means paying off in the following order:

1. Credit cards
2. Private loans (unsecured loans)
3. Car loans (secured)
4. Mortgages
5. Student loans