6 Ways To Pay Off Your Loan Faster
Home loan borrowers would love to pay off their loan as quickly as possible. One of the best ways to save money while repaying your loan is to pay it back as soon as you can. Anyone who has a home loan knows what this means. More you owe the bank, higher the interest payment you make.
A 30-year-old loan agreement will lower your monthly burden. But, if you pay it back sooner, you can save a lot of money.
MakaanIQ tells you how to pay off your home loan faster.
Make the most of zero pre-payment charges
If your home loan is flexible when it comes to pre-payment charges, take advantage of it whenever you can. Make lump sum loan payments whenever you have cash, without incurring pre-payment penalty. The frequent pre-payments will lower the principal amount. The interest you pay will also decline over the term of your loan. So, try to make frequent pre-payments (weekly, monthly or yearly). But make sure that you do not have to compromise your other needs to make pre-payment.
Also Watch: Easy Tips & Tricks For Home Loan Prepayment
Switch to a lower home loan interest rate
Switch to a lender who offers a lower interest rate. But make sure that this move is financially prudent. First, your lender would not want to lose a customer. So, he might levy exit charges if you leave him and choose another lender.
Second, make sure that the low interest rate offered by a new lender is not a short-term “introductory or a honeymoon” rate used to lure customers. Otherwise, the move can be costlier.
Make sure that the deal works to your advantage. You can ask your lender to offer you a better deal to avoid refinancing (i.e. switching to a new lender). If that does not work, you can demand a customised package/processing fee waiver from the new lender.
Earn more than what you pay as equated monthly installments (EMIs)
If you are not too sure about spending more towards pre-payment of your home loan, then, you can invest in options where you earn higher interest than what you pay on monthly loan installments. Try to pool in funds to investments that yield returns in the range of 12-15 per cent, which is higher than the loan interest bracket of 9.50 to 11.50 per cent. You can always seek the advice of a financial expert while deciding where to invest.
Stick to the same repayment pattern even if the interest rate declines
If your minimum regular home loan repayment declines because interest rates fall, maintain the same repayment pattern. By maintaining the same repayment pattern (which is now higher than necessary because of the decline in lending rates), you will pay-off your home loan faster. In fact, you will not have to arrange or pool in extra money towards pre-payment of the loan. And as you are used to paying as much already, you will not even feel the pinch either.
Got bonus/promotion? Pay more towards monthly installments
If you got a bonus or an increment, use it to pay more towards home loan installments. Do use that opportunity to run up more debt. Focus on getting out of debt as soon as you can. Extra repayments at any time can help lower the time and interest cost of your home loan.
Opening of interest saver/offset account
An offset account is a transaction account that is linked to your home loan. The purpose of this account is that the money you save in this “offset” account could offset what you owe on your home loan. And interest will be charged on the difference at the end of the day. Higher the amount of money you have in your linked offset account, lower the interest rate you will pay on your home loan.
You must pre-check the interest charged on home loan interest saver/offset account facility because it can be different/ higher than what is being charged on a standard home loan.
Also Read: 5 Myths About Mortgages