Many of us wish for a debt-free life, where we own our homes outright and have enough cash in our pockets. Although it may appear unachievable, you can realize your desire by adopting a few sound financial habits.
Paying off your mortgage and other high-interest loans faster is one of the most effective strategies to do it. Paying off a home loan faster will help you drastically lower your debt burden. Furthermore, it will assist you in avoiding default and will prevent you from incurring penalties or late fees.
Why do you need to pay off your home loan faster?
Home loans are large, long-term liabilities for the majority of home loan borrowers, ranging from 15 to 30 years. The principal amount you borrowed grows substantially larger over time as a significant amount of interest is charged to it. You may believe that the house loan interest rate is lower because you choose a longer-term, but the interest added to your borrowed amount over time can easily double or even triple the amount borrowed.
As a result, paying off your home loan sooner is the greatest approach to getting rid of this load. You may repay your house loan faster with a minor increase in EMIs and some forethought, which works better in a dropping interest rate environment.
Looking beyond the big banks can help
It’s not always about the large banks, though. Even smaller lenders can help you out in some cases. This is feasible because you may receive more personalized care as well as limited-time discounts. Longer loan terms, reduced continuing costs, and cheaper interest rates can all help.
- Longer loan terms of up to 30 years are possible.
- Fixed-rate with a 100 percent offset account.
- Higher lending ratios (LVR)
- Low application and processing fees.
Increase your payment frequency
Making numerous payments is permitted by some lenders. As a result, while choosing a lender, keep this in mind. If possible, you should request this option and be able to make payments even after the EMI has been paid. Because interest on home loans is calculated daily, making more frequent payments might help you minimize the amount of interest you will pay over the life of your loan.
Making partial prepayments
If you have extra cash, making partial payments on your house loan can help you pay it off faster. There are no penalties for partial prepayment when you choose a variable interest rate home loan. Making a partial prepayment will reduce your outstanding balance immediately, and if done on a regular basis, it can also help you pay off your house loan quickly. However, you must inquire about this option with your lender when applying for a home loan. If not checked appropriately, you may lose access to this feature for the duration of your contract.
Make at least 20% Downpayment
Making a larger down payment on your house loan lowers your principal balance, making you feel less obligated. As a result, you’ll spend less on interest and, as a result, on total payback.
This occurs because, when compared to other house loans, having a large down payment lowers your debt commitment. The other reason is that when you have a little principal, repayment is significantly easier.
Home Loan refinancing can help you
If you’ve analyzed your house loan and discovered something more convenient and cheap, a home loan refinancing may be able to assist you in getting what you want.
Try negotiating your current rate with your current lender, or switch to a different lender who provides a lower interest rate. You can save a lot of money if you do it this way. However, you must evaluate more than just the interest rate; use a house loan EMI calculator and double-check the detailed computation and total borrowing cost with both lenders. Choose the one that best meets your needs and will save you the most money.
Quick money-saving suggestions to help you pay off your home loan faster
- Before you apply for a home loan, save some money for a down payment.
- Travel plans that aren’t necessary should be postponed.
- Make as little use of your credit card as possible.
- Partially prepay in small or large amounts.
- Choose a loan amount that is simple to repay.
- Any personal loan should be avoided.
- You can rent out your property that you don’t use very often.
- Ensure that credit card dues are paid in a timely manner.
- You can supplement your income by freelancing.
- Profits from other assets, such as FDs and other policies, can be put to good use.