Simple Home Loan Repayment Tips

MortgageYou do not need 30 years or more to repay your home loan.  With proper planning, you should be able to repay a home loan in as little as 10 years without hurting your budget or other bills that need to be paid. All you need to do is to disengage the autopilot program, then start repaying the loan as per your income capacity. Discussed below are several tips on how to repay your home loan, as well as slash the repayment period.

1.     Offset part of the loan with your savings:   Most people start saving for their dream houses as soon as they get their first job.  These savings come in handy especially when repaying a home loan in that, you can use your entire savings (say 10 years worth of savings) to offset a part of the loan.  The best thing about using this repayment plan is that, it helps reduce interest payable on the loan. If the loan was $600,000, and your savings were $200,000,   you will only pay mortgage interest on the remainder ($400,000). This is an excellent way to jumpstart the repayment plan.

2.    Use salary bonuses and other lump sums to offset the loan: Using the extra money to repay the loan can help knock off a few months (or years) of the repayment period, hence bringing you closer to owning the house. To be on the safe side, it would be advisable to make the additional payments before paying the monthly dues. This helps reduce compound interest over time, especially if your loan is at a fixed interest rate.  Discussing the extra repayments with the loaning body can also help to reduce charges incurred for the additional rebates.

3.    Align repayments with your income cycle:  Many people use this strategy as a way to avoid penalties that come with late loan repayments. Although it may not seem like much, the small amounts have a substantial effect on the amount of money you spend on late penalties and interest. It’s therefore a wise idea to structure repayments based on how you get money or income, either weekly or on a monthly basis.

4.    Refinance via loan takeover:  Many are times when homebuyers come across bank offers offering lower interest rates on an outstanding loan. Using such loan offers to refinance the home loan is therefore an excellent way to save money over the loan tenure.  Although loan refinancing doesn’t reduce the amount of payable loan amount, it does reduce interest paid over time.   You however need to be very careful when choosing a refinancing offer to avoid paying more than you are supposed to.

5.    Increase repayments when rates are steady: If interest rates hit a record low for some time, it would be advisable to keep loan repayments at a constant level regardless of the decline. If you get a job promotion, or a pay-rise, you should then consider increasing the repayment amounts. Even the slightest increase (say $50) can have a huge impact on the lifespan of the loan.

Ensuring all monthly installments are paid on time and increasing repayment amounts should help reduce the time needed to repay a home loan.  A financial advisor should also be able to help you realize more ways to repay loans without struggling.