Here Are Easy Ways To Know How To Pay Home Loan Faster
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Earlier, I have mentioned in various occasions the benefits of getting debt free. It is advised that you should pay off your home loan as early as possible. For a personal loan of Rs 2 lakh with 10% interest over a repayment tenure of 12 months, the EMI to be paid is Rs 17,583. Instead, you can add 10% to it and repay Rs 19,341 per month. The obvious ones are saving a ton of money on total interest paid. Just go through the above section again to see the quantum of savings.
As a matter of fact, you may be able to avail a better rate of interest on the mortgage loan when you pair it with a short-term refinancing option. The key is to reinvest your savings into paying off your student loans faster. You will be surprised by how quickly the little things add up. That’s all I wanted to say about how to repay the home loan faster.
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Switching lenders so you can access lower interest rates seems like a simple tip, but many people don’t do it because of the hassle involved. Many Australian homeowners are looking into repaying their loans as early as possible to avoid interest rates which may rise from current historic lows. However, there is more than one way to achieve this goal, so explore all your options, and preferably get financial advice, before settling on the method that’s best for you.
A monthly repayment schedule means you make 12 repayments per year. A fortnightly schedule means you make 26 repayments, each at half of what your monthly repayments were. Let’s assume that your loan comes with an interest rate of 4%. If you make the standard repayments, the loan will probably last for between 20 and 30 years.
#4 Increase your EMI
If Australia’s interest rate rises, you can feel certain that lenders will increase their own rates. This will eat into any money that you had earmarked for extra repayments on your mortgage. Usually, lenders offer lower interest rates on their mortgages than they do on their personal loan products. As a result, consolidating your personal loans onto your mortgage means you pay a lower interest rate, so you have more money to make extra repayments. Though an EMI calculator lets you know the amount you will need to repay every month, repaying a loan faster depends on you. Early repayment of the loan not only frees you of debt but also helps your credit ratings.
Some banks will require a minimum account balance and charge high monthly or annual fees. While this method may not be as regulated as the other three, it undoubtedly offers convenience to anyone who is not able to commit to a structured prepayment approach on a defined schedule. If your lending partner does not charge a penalty on ad hoc part-payments or pre-payments then you should definitely opt for this strategy. Simply inform the lender that extra payments may be coming through at various times during the year.
Can We Repay a Loan of 25 Years in 10 Years?
Besides this, you can also enjoy a flexible tenor, the nominal rate of interest, and online application. Consider consolidating your student loans if you have an excellent credit score and high-interest rate loans. Not only will that simplify the repayment process, providing you with a single bill to pay each month, but it can also substantially reduce your interest rate. When you prepay Rs 35,000 per month , then loan tenure reduces from 25 years to 11 years and total interest paid is Rs 52.8 lakh (which means savings of Rs 79 lakh compared to the original Rs 1.31 Cr total interest). When you prepay Rs 17,500 per month , then loan tenure reduces from 25 years to 12 years and total interest paid is Rs 26.2 lakh (which means savings of Rs 39 lakh compared to the original Rs 65.7 lakh total interest). Your equity loan will usually carry the same interest rate as your home loan.
If you are interested, here are some additional thoughts on managing home loan properly. At Finty we want to help you make informed financial decisions. We do this by providing a free comparison service as well as product reviews from our editorial staff. At the moment bajajfinservmarkets.in site and our products are available only in India.
When refinancing to a lower interest rate, you should also consider the value of your home loan. For example, a one percentage point drop will help you save more on a $500,000 loan than it would on a $100,000 loan. Include a co-borrower in the home loan, to increase the income. Your EMIs will be Rs. 77,000 (approx.) and the cost of loan Rs. 1.84 Crore (approx.) if you opt for a 20-year tenor. On the other hand, the EMIs become Rs. 84,000 (approx.), and the cost of the loan is Rs. 1.51 Crore if you go for a 15-year tenor. Your credit report will also reflect the default in payment.
Loan portability can also help you avoid potential break costs, keep current home loan features (i.e. debit or credit cards and online bank accounts), and keep current lenders and interest rates. Whether this makes monetary sense for you will also depend on how much of your home loan you’ve already paid off and whether you’re planning to move in the next few years. You can use a home loan calculator online to determine the change in monthly payments and see if this is the right move for you. A home loan borrower can reduce the tenure of the loan, when the interest rate of the bank is reduced, or by switching the loan to another bank that offers lower interest, or by prepaying a part of the loan.
Even baby steps can help when you’re trying to repay your home loan faster. Instead of waiting a month, which is what most lenders ask, you could make the first repayment on the day of settlement. You should prepare a chart how you can repay your home loan quickly.
When you make a one-time annual prepayment Rs 7.5 lakh once a year , then loan tenure reduces from 25 years to 7 years and total interest paid is Rs 33.8 lakh (compared to the original Rs 1.31 Cr total interest). When you make a one-time annual prepayment Rs 5 lakh once a year , then loan tenure reduces from 25 years to 10 years and total interest paid is Rs 44.8 lakh (compared to the original Rs 1.31 Cr total interest). When you make a one-time annual prepayment Rs 4 lakh once a year , then loan tenure reduces from 25 years to 11 years and total interest paid is Rs 51.5 lakh (compared to the original Rs 1.31 Cr total interest).
Avoiding life’s little luxuries could save you hundreds of dollars that you can put toward your home loan. Of course, you don’t have to live a Spartan existence either. Just try to avoid repeatedly spending money on things you don’t need. If you want to know how good your home loan really is, put it to the test by checking your loanScore. All you need to do is pop in some details about your home loan and in two minutes you will know if you could be saving money.
Moreover, it will also help you steer clear of defaulting and ensure that you don’t have to spend on penalties or late fees. Before making any financial decision, it is crucial that you evaluate what you have and how you can make it work. List down all your outstanding debts and determine which are long-term and short-term commitments. For example, your personal loan can be a short-term commitment, while your home loan can be seen as a long-term commitment. And hence, it would make sense to repay your personal loan first. Another way to look at it is by paying outstanding debts with a higher rate of interest firsts.
Suppose you are a bank employee having holidays on 2nd and 4th Saturday of a month. If a 15 year period seems like a tightrope, consider a 20-year schedule instead. At the end of the schedule, you will be left with additional funds to spend on achieving life goals.
Sidenote – There is a mathematical case for not trying to go for home loan prepayment and preclose the home loan quickly as home loan rates in India are low. This post focuses on people who want to get rid of their loans as quickly as possible. Sometimes additional discounts are offered when you sign up for auto payments and paperless statements. It saves the lender money by not having to follow up with paper billing and creates a seamless payment experience, so there are no late fees. I was able to get an extra 0.25 percent off my interest rate since taking advantage of online bill pay and paperless statements. Many lenders use introductory rates to tempt borrowers to their products.
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