Should I save while repaying a loan or pay off the loan as quickly as possible?

Finns have traditionally repaid their home loans quickly. But is that the right move? Saving Specialist Tara Toikka tells us why it’s wise to start investing while repaying your home loan.

Owning a home is important for Finns and they usually want to pay off their home loans and become debt-free as quickly as possible. But Toikka has seen a gradual change in this mindset. People are now considering other options, too, such as investing alongside their loan repayments instead of rushing to pay off the debt. 

According to Toikka, monthly saving can give you a higher return on your money compared to only focusing on home ownership and paying off your loan. Toikka gives two examples: 

“If you have taken out a home loan of 200,000 euros and your monthly repayment is lower, such as 700 euros, it will take you 25 years to repay the loan. During this time, you can also build a nice buffer for the future by investing 200 euros a month in funds, for example.” 

“If you pay off your home loan at a pace of 900 euros a month in 20 years instead and then try to save up a similar buffer in just five years, you would have to invest 1,700 euros a month.” 

  • By extending your loan period by a few years, your monthly expenses will remain the same but you will be able to put some of the money towards your savings. Once your loan is paid off, you will have both a home and a nicely growing investment.

Take advantage of the effect of compound interest

Patience is a virtue when investing, as you will benefit from the effect of compound interest over time. The longer you save and invest, the more your money will grow. Compound interest means that both your monthly investment and the accrued interest will increase the value of your overall savings pot. So putting aside even a small amount each month can add up to a tidy sum in the long run. 

Prepare for changes in interest rates by saving and investing

Saving monthly in a fund could help you build a financial buffer. When interest rates are low, you have an opportunity to put aside more money and grow your savings while repaying a loan. When interest rates are higher, you can reduce your contribution or use your savings to cover your rising loan costs. These are some ways in which you can adapt to the changing interest rates and build a buffer of savings for times when your finances are tight.

How much do I need to get started? 

“The amount to be invested depends, of course, on your personal finances and circumstances. A good rule of thumb is that you should spend about 40% of your income on essential living expenses and invest part of the remaining money. If your loan repayment is 700 euros, your monthly investment could be 200 euros, for example.” 

What should I invest in?

“When you need cash quickly, you can’t scratch it off the walls of your home. Investing in funds is a more flexible option because you can access your money quickly, if needed, and have it in your account in just a few days.” 

Naturally, there are other ways to invest, too, but Toikka sees investment funds as an easy way for budding investors to get started. Funds are well-diversified and professionally managed, which makes investing in them easy and more lucrative than keeping your money in an account.

Let’s find the best way for you to save and invest

Book a free meeting with us for investment advice. We’ll find a solution together and prepare a tailored saving plan for you. The meeting is always without any obligation. You can also start investing right now with the help of our digital investment adviser Nora.

Tips for regular saving while paying off a loan

  1. Save while you repay your loan By saving throughout your loan period, you will get more flexibility and a higher total return on your savings.
  2. If you want to keep the monthly amount relatively unchanged, you can extend your loan period and invest the difference, for example.
  3. We offer easy ways to extend your loan period in mobile bank or through Nordea Customer Service.
  4. Funds are a great way of dipping your toe in the investment waters. You can get started easily and you also benefit from good diversification and professionally managed funds.
  5. And if something unexpected happens, you can easily edit your monthly savings amounts.

Our calculations show why it’s smart to save during the loan period

The examples below illustrate the difference in the total value of your savings in the following scenarios:

  1. You extend your loan period from 20 to 25 years, which allows you to spend less money on your monthly loan payment and put it in your savings instead.
  2. You only start monthly saving after first having paid off your loan in 20 years and save for 5 years (25 years in total).

In both scenarios, you are saving 200 euros a month:

  • In example 1, the total value of your savings will be 102,103 euros in 25 years.
  • To reach the same outcome in example 2, you would have to save more than 1,700 euros a month for 5 years.

Example 1: Monthly saving during the loan period

Example 1*
Loan principal200 000 €
Monthly loan payment754 €
Monthly savings200 €
Monthly total954 €
Loan period25 years
Total interest of the loan26 123 €
Total investment60 000 €
Return on savings42 103 €
Value of savings at the end102 103 


*In this example, the customer saves money in a fund that is expected to yield a 4.00% return and the interest rate on the loan is 1.00%.

It's always good to keep in mind that when it comes to funds or equities, past performance is not a guarantee of future results. The value of fund units or equities may increase or decrease due to market movements, and it is not certain that you will get back the entire amount you invested.

Example 2: Monthly saving after the loan has been repaid

Example 2*
Loan principal200 000 €
Monthly loan payment920 €
Monthly total920 €
Loan period20 years
Total interest on the loan20 749 €
Monthly savings once loan is repaid200 €
Total investment12 000 €
Return on savings1 619 €
Value of savings at the end13 270 

*In this example, the customer saves money in a fund that is expected to yield a 4.00% return and the interest rate on the loan is 1.00%.

It's always good to keep in mind that when it comes to funds or equities, past performance is not a guarantee of future results. The value of fund units or equities may increase or decrease due to market movements, and it is not certain that you will get back the entire amount you invested.

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Important information about investing

The information provided on this website is intended for general product information only and does not constitute investment advice or recommendations. When it comes to funds or equities, past performance is not a guarantee of future results. The value of fund units or equities may increase or decrease due to market movements, and it is not certain that you will get back the entire amount you invested.