When you think of the word “home loan”, the image that probably comes to mind is living beyond your means and worrying about repayment. But a loan doesn’t have to be something you can’t afford; it can also be an opportunity for you to own your home sooner rather than later. With the right amount of planning and budgeting, you could pay off your mortgage sooner and save thousands of dollars in interest charges over the life of the loan.
Did you know that lenders encourage homeowners to pay off their mortgage early? As long as you can prove you have the financial ability to do so, most lenders will help you pay off your loan as soon as possible. That being said, the average mortgage term is almost 20 years. But you can easily repay the home loan earlier than the standard term and save money and accelerate your financial independence.
Whether you’re planning for retirement or just trying to dodge that monthly payment, there are a number of ways to pay off your home loan ahead of schedule without incurring penalties in some cases. One or more of the following five changes to your payment plan can help.
Increase your monthly payments
Depending on the type of loan you have, you may be able to increase your monthly payment even if you can’t refinance. This approach works best for a fixed rate loan and is a good option if you don’t have the cash to refinance your loan. Most mortgage providers will accept an additional payment per month, but be sure to speak with your lender to see if they accept advance payments and how much they charge.
But it’s still the most efficient way to repay because when you increase your monthly payment, you’ll be able to pay off the loan sooner and save a lot of money in interest charges over time. And the sooner your loan is paid off, the less interest you will pay.
Even if you don’t have any options to refinance your loan, increasing your monthly payment can be a great way to invest some extra money in your loan. There are different strategies you can use to increase your payments: Pay an additional lump sum on your loan. This way, you will pay off your loan a little faster than expected.
Start paying an extra amount each month. This is a good option if you want your payments to stay constant. Just be sure to include the extra amount in your budget so you don’t forget about it.
Balance transfers are the best way to pay off your mortgage sooner
The interest rate of a home loan is always a concern for borrowers because a home loan usually involves a large sum of money. Therefore, if you are unable to make the payments on your mortgage, discuss your options with your lender. They may be able to help give you a better deal and lower the interest rate, but if not, there’s always an option to transfer the balance to the new bank.
A low interest rate is a good sign to transfer the home loan to a new lender. In general, most interest rates have a floating basis, which means that they are linked to macroeconomic factors. So, whenever there is a downturn in the economy, it is natural to be tempted to switch to a lender who offers you a better interest rate. For example, even a 0.5% drop in interest rates can have a significant impact on the overall interest expense of a home loan.
Let’s understand this with an example:
Priya takes out a home loan of INR 50 lakh at an interest rate of 8.5% with a payment term of 20 years. His monthly EMI will be INR 43,391 and total interest expense will be INR 54 lakh. After three years, she decides to reduce her EMI by transferring her home loan to a new lender who offers her an interest rate of 7.6%. The outstanding balance is about INR 47 lakh and the remaining payment term is 17 years. This means that his new monthly EMI will be INR 38,151 and total interest expense will be INR 44 lakh. This means that when her interest is reduced even by 0.9%, she still saves INR 10 lakh altogether.
Using this example, it’s easy to see that switching your home loan to another lender can help you save money on interest and pay off your mortgage early. However, everything has its pros and cons, so be sure to compare the interest rates, fees, and features of each loan to find the best deal for you. There are a few things to keep in mind if you’re considering a balance transfer.
- You will need to make sure your new lender offers this type of loan.
- You will need to know if there are any fees associated with the balance transfer.
- You will need to ensure that you can still pay your monthly mortgage payments after the transfer.
Shorten the term of the loan
You can shorten your home loan by repaying the entire loan in one lump sum. This might work well if you have extra cash and don’t need it for a long time. You can also do this if you don’t have the cash to make additional monthly payments. Before paying off your loan in full, be sure to speak with your lender to make sure you are not violating the terms of your loan. How it sounds counterintuitively, this essentially means increasing the monthly payment.
Paying extra each month will reduce the term of the loan. There are two ways to shorten the term of your loan. Refinance your loan (with a new 15-year mortgage) and make monthly payments: This option is ideal if you have the cash to make a larger payment each month. If so, you can reduce the term of the loan by making monthly payments instead of bi-weekly payments.
But there are a few things to consider before making this decision. First, you’ll need to make sure you can afford the higher monthly payments that come with a shorter loan term. Second, you will also need to consider any prepayment penalties that may be associated with your mortgage. If you’re confident you can afford higher payments and are comfortable with potential penalties, shorter loan terms can be a great way to save money and pay off your mortgage longer. early. The key is to make sure you’re ready for the higher payments.
Make an additional lump sum payment
A home loan is a big investment that requires a lot of money. It is not uncommon for people to struggle to make their monthly payments due to low income. In such cases, it may be tempting to make an additional lump sum payment and close out the home loan early.
A lump sum payment is a one-time upfront payment that can help you close your mortgage sooner and a way to save money on interest and pay off your mortgage sooner. However, it can be a very costly decision if you are not aware of the penalties involved.
But still for many, the lump sum payment is the most convenient way to shorten the term. The way to do this is to choose an option that will reduce loans and free up funds for other key items such as children’s education, vehicle lease payments or savings for retirement. Some even set aside enough for the end-of-term goal, such as gathering money for vacations or saving large amounts of savings.
Consolidation: merging multiple loans into one
If you are repaying multiple loans, you may be able to shorten the term of the loan and pay off your mortgage sooner. If you have multiple mortgages, you can consolidate them into one loan. This can help you reduce the amount of interest you pay on each loan. If you have several small loans, consolidating them into one large loan could help you pay off your mortgage faster and save money in the long run. This is a great option if you have several small loans with a high interest rate.
Conclusion
It’s no secret that paying off your home loan early can save you a lot of money in interest. But how do you do it? There are different strategies you can use to pay off your home loan early. The most popular method is to make additional repayments. This involves making payments in addition to your regular repayments, which will be used to repay the principal of your loan.
Another option is to make lump sum payments. This means making a larger payment than usual, which can be used to pay off part of the loan. This can be a great option if you earn extra money, like a bonus at work. Finally, you can refinance your loan for a shorter term. This will reduce your monthly repayments, but you will pay off the loan sooner. It’s a great option if you can get a lower interest rate.
Whatever strategy you choose, make sure you stick to it. additional payments, lump sums or refinancing, paying off your home loan early is a great way to save money.