A debt-free life is a dream to many of us, where we want our own homes outright and with pockets full of cash. Well, it seems impossible but you can achieve this dream of yours just by following a few good financial habits.
Let’s talk in detail, how you can achieve this. One of the most significant ways to achieve this is by paying your mortgage and higher interest rate loans faster. Paying off a home loan faster will help you reduce your debt burden by leaps and bounds. Moreover, it will also help you steer clear of defaulting and will ensure that you don’t have to spend on penalties or late fees.
Why do you need to repay your home loan sooner?
Home loans are long-term big liabilities which often stretch from 15 to 30 years for most of the home loan borrowers. During this long tenure, the principal amount which you have borrowed becomes much more as a huge amount of interest is added to it. You may think that the home loan interest rate is lower hence you go with a long tenure, but when interest is added to your borrowed amount for a long time it can even become double or even more than what you borrowed.
Hence, the best way to get rid of this burden is to pay off your home loan faster. With a small increase in EMIs and some planning, you can repay your home loan faster, and this works better in a falling interest rate regime.
Here are various ways following which you can pay off your home loan faster.
Looking beyond the big banks can help
Well, it’s not always about the big banks. Sometimes even smaller lenders can do the wonders for you. This is possible as you may get more personalized service, and some limited period offers as well. This can be a longer loan tenure, lower ongoing fees and lower interest rates.
some advantages which you can get with small lenders and NBFcs are-
- Longer loan tenure which can be more than 30 years.
- Fixed-rate with a 100 percent offset account.
- Higher lending ratios (LVR)
- Low application and processing fees.
Make more frequent payments
With some lenders making frequent payments is allowed. Hence you need to check for this when selecting your lender. If possible you can ask for this facility and can make payments even after paying the EMI. This is suggested because interest on home loans is calculated daily, making payments more frequently can help you to reduce the interest which you will be paying over the term of your loan.
Making partial prepayments
If you have surplus funds with you, going for partial payments can also help you to repay your home loan faster. When you opt for floating interest rate home loans, there is no penalty on partial prepayment. Making a partial prepayment can bring down your outstanding instantly and when done regularly can also end your home loan fast. But to opt for this, you need to check for this option with your lender while applying for your home loan. If not checked properly you can be deprived of this facility for the entire tenure.
Make a down payment of more than 20%:
Making a bigger down payment on your home loan significantly reduces your principal amount which makes you less burdened. This results in spending less on interest and hence on overall repayment.
This happens as making a big-ticket down payment reduces your debt obligation as compared to other home loans. The other point is, when you have a low principal amount, the repayment becomes much easier.
Home Loan refinancing can help you
If you’ve reviewed your home loan and found something which is more convenient and affordable, then a home loan refinancing can help you to get what suits you the best.
Try negotiating your current rate with your existing lender or the other option is- go with a new lender that offers a lower interest rate. Doing this can save a lot of money. But it’s not only the interest which you need to consider, use a home loan EMI calculator, check for the detailed calculation and for the total borrowing cost with both the lenders. Be with the one who suits the requirement and pocket the best.
Quick tips to save money to pay off your home loan faster
- Save some money to make down payment before you apply for a home loan
- Postpone your unnecessary travel plans
- Minimize your credit card usage
- Make small or big partial prepayments
- Go with a loan amount which is easy for you to repay
- Avoid taking any personal loan
- Lease your property which you rarely use
- pay your credit card bills on time
- You can do freelancing to make extra money
- Utilize profit from your other investments such as FD and other policies.