TIPS AND TRICKS TO HELP
YOU SETTLE YOUR HOUSING LOAN EARLIER
It
is one of the most common financial issues people face: paying off a housing
loan.The commitment and obligation that comes with a mortgage can be pretty
daunting. Especially when you’re faced with
large amounts that can amount to hundreds of thousands. Paying off a loan with
that amount in a short time frame is likely impossible (unless you’re sitting
on a mountain of inheritance). If you haven’t committed yourself to a loan yet,
pull out any housing
loan calculator in malaysia to play around
with numbers to optimally come up with a plan that you are financially
comfortable with.
If,
however, you are already on your repayment journey, then perhaps you can think
about ways to shave off years off of your payment schedule, which might help in
saving you money in the long run. Here are some tips and tricks to help you on
your way to settling
your housing loan earlier.
1. Make extra repayments
Consistent
repayment is usually the way to go when it comes to fulfilling your loan
commitments. However, depending on the type of financing you acquired, making
additional ad-hoc payments can certainly reduce the principal on your housing
loan at a faster rate. If your loan is a flexible-rate loan, then making
additional repayments will save you a lot in terms of the total amount paid in
interest. However, if your loan is a fixed-rate loan, then extra repayments
will probably not do much in reducing the amount of interest charged. Again,
whether you will save any money if your loan is fixed-rate is up the discretion
of the terms in your contract.
2.
Make extra repayments right from the start
Building
off of the previous point, making additional repayments earlier in the loan
term will be more beneficial for you in terms of time and money saved, if you
have a flexible-rate loan. If you make your first home loan repayment earlier
than the first settlement date, then this will reduce the principal before the
first lot of interest accrues on the amount you have borrowed. On another note,
most lenders will allow you to make extra payments and mark it “principal
only”, meaning that this amount will go down to paying for the principal amount,
rather than both the principal and interest. These extra repayments will save a
lot of interest charges off your final loan amount. Not to mention, making
extra repayments will get you out of the loan ahead of schedule.
3.
Refinancing
If
you have had your current home loan for a number of years, perhaps it’s time to
consider refinancing. It is important that you keep up with the current climate
in the financial markets in order to determine if the interest rates on your
current loans are the best rates you can acquire. In certain situations,
refinancing your loan will allow you to benefit from lower interest or
financing rates, depending on the current economic climate. For example,
perhaps you are 10-years into your current 30-year mortgage and find yourself
in a better financial position. Refinancing this into a 10- or 15-year loan
will help you work through repayment faster. Not to mention, it will get you
better interest rates as well, as shorter-term loans typically come with lower
interest rates.
4.
Take advantage of financial windfalls
Financial
windfalls come in many forms: bonuses, tax returns, inheritances, etc. Although
you might be tempted to spend the money on pleasure, why not put it to better
use? If you use most, if not all, of the extra money to make additional
payments on your housing loan, you will make serious progress in getting the
principal paid off. Additionally, if you get a raise in your income, consider
rethinking your financial plan to allocate more towards paying off your
mortgages. Since you won’t be used to having the extra money, you won’t even
miss it if you put the extra amount into settling your debts!
5.
Don’t stray from the plan
Sometimes,
certain situations will arise to make you stray from your repayment plans. For
example, when interest rates fall, you might be tempted to lower you home
repayments to keep pace with the minimum required repayment amount and just
pocket the difference. Before you do this, consider the fact that keeping your
repayment amounts at the original level will put in a significant dent towards
the principle of your loan, especially when interest rates are dropping.
Getting your home loans paid off is not just a matter of sound financial
planning, it’s also a matter of keeping yourself away from the temptation to
stray from it.
Final
thoughts: should you pay off your
mortgage early?
Before
you consider all these tips to pay off your housing loans early, sit down and
take a look a whether doing so will really save you money at all. In certain
situations, paying off your loans early does not give you better financial
payoff. For example, if your interest on your mortgage is already at a low
rate, you can get better financial payoff by putting the extra money into
investments instead. You can also consider directing your extra cash on hand
into retirement accounts or other investment options in order to reap the best
benefits from the extra cash. In these instances, letting the mortgage run out
on its own time is by far a better choice.
