You could say that it is pointless to use a savings form that gives a lower expected return than what you pay on the loan. Many experts would say that debt repayment is the safest form of savings. And this is very true. Because you have to remember that the interest rate you save will be higher than the one you can earn on deposit accounts. Therefore, your existing loans will thus limit which investments are relevant.
Here is a good tip:
You should always compare with the most expensive loan you have. A car loan is normally more expensive than a mortgage and must be repaid in full before it pays to pay a penny in installments on the mortgage.
The repayment must be greater than the fall in value of the object it is financing. When it comes to mortgages, this is fine, because prices will rise over time. Still, a car loan looks different. Simply because the car falls sharply in value every year, depending on the price. If the impairment is NOK 30,000, you must at least repay a loan with a larger amount than this in order for it to be counted as savings.
A key point when it comes to your mortgage is that the cheapest loans are within 60% of the home loan rate (equivalent to 50% of the value of the loan). Loans that are within 80% of the loan rate have an average interest rate that is 0.5% higher than within 60%. This difference does not seem that big. But here we have to look at the marginal interest rate you pay, namely four percentage points higher interest rate on the part of the loan that exceeds 60% of the loan rate.
It is common for repayment of loans to count as savings
The consequence of this is that the expected return on equity funds is well below what you pay marginally on the mortgage. It is only when you have reached 60% of the loan rate that you can expect the long-term return on equities and mutual funds to exceed the interest rate.
As mentioned initially, debt repayment is the safest form of savings. Don’t forget this. You can safely expect that the cheapest loans, with collateral within 50% of the turnover value, will be approx. 0.75% over the best high-interest accounts. There are major differences between banks in this particular area. There are many loans with very good collateral, which are far above this. Among other things, it is wise to know that small loans are often priced much higher at many banks.