Thursday, 28 September 2017

Repay Your Mortgage Early, Get Free!

Do you wish to become debt free as soon as possible? Well who does not! We all want to quickly pay off our debts to lift the strain of the monthly EMIs on our income. Moreover, if the tenure of the debt shortens we will save a huge amount of money on interest payments.  Here are some ways in which you can try and pay off your mortgage early.
1.      Make this your no. 1 priority and use whatever extra cash you get to pay down your debt faster. A rise in the pay, annual bonus and cash gifts received are some examples where lumsum cash can be used to make a large mortgage repayment in one go. Not only will you save huge amount on interest costs you will shorten your loan tenure by a few months too.  And all this can be achieved without reconfiguring your monthly budget. Before you do so, check the terms and conditions of the loan to ensure that there is no prepayment penalty. Also make sure that whatever extra payment you make goes towards the repayment of the principal and not the interest cost or the prepayment of next EMI.

2.      Make a little extra payment every month by increasing your monthly outgo of loan EMIs. Do a quick calculation on the loan EMI calculator to see exactly how much your mortgage tenure shortens if you pay off a larger EMI.

3.      Instead of paying every month, make bi-weekly payments of half the amount. This will essentially lead you to paying one extra payment every year. Without feeling too much load, you will be able to enjoy a faster pay off. With frequent payments less interest will accrue on the principal balance. This will translate into significant savings over the life of the loan.

4.      If your current loan provider is charging too much as a repayment penalty, you can get your loan refinanced by a different provider who is ready to offer you shorter loan tenure. You will have to do your maths to compare whether it is beneficial to shift to a different loan provider after paying off the early repayment fee on your current mortgage. The loan EMI calculator will help you evaluate how much you will save on interest payments if you switch to a different provider with a shorter loan term.

5.      Link your savings account with the mortgage. The money in the savings account will be deducted from the principal balance and hence lower the amount of interest charged. You can use this method to pay off the loan early.

6.      Lenders usually charge different rate of interest depending on the risk associated with the borrower’s profile. If your credit score wasn’t very impressive at the time of taking the loan, you may have been asked to pay a high rate of interest. Start working on your credit profile and pay attention to the factors that affect the CIBIL score calculation. If you are able to raise your credit score in a few years time, you may use it to your advantage and ask the current lender to lower the interest rate. If you have been diligent with your payments, your bank may agree to renegotiate the interest rates. Alternatively, you can look for other lenders who may be ready to offer you a lower rate. In this case you will be able to keep the EMI amount same and still be able to pay off your loan sooner.

The above tips will help you to pay off your mortgage faster. But before you start implementing these strategies, check your portfolio and see if you have any credit card balances or other debts. High interest debts should be paid off first to save on interest costs. Also remember that shortening the term will increase your monthly outgo. Set it at a level that you can easily afford. Use the loan EMI calculator to see what tenure and EMI amount suits you. Alternatively, keep flexibility in how you repay; by overpaying only when you have cash available. Make sure that the additional amount is applied to the principal balance and not the next month’s payment.

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