Home loans are typically long-term, lasting anywhere between 10 and 25 years, they leave borrowers indebted for the major part of their active life. Settling for long-term loans, however, helps spread the repayments over time, sparing funds for more pressing needs but at a higher cost. What if the loan can be paid up much earlier than its tenure? It is very much possible to do just that with a little financial discipline and focus. Do make sure that there are no penalties to foreclose the loan.
Here are four tried-and-tested ways that help get rid of debts faster than it seemed possible.
Refinancing the Loan
Getting the home loan refinanced is probably the simplest way to reduce the debt burden. With a good credit score to back the refinancing application, banks or other lenders will be willing to settle the old loan and issue a fresh one for the remaining amount. It is possible to avail lower interest rates commensurate with the loan amount. Deciding on suitable loan tenure is the key to freedom from debt. The borrowed amount being lesser in the refinanced loan, interest and monthly payments are also bound to be lower. With the financial means to pay higher monthly repayments against the older loan, it makes sense to opt for shorter loan tenure and pay up the debt faster.
Increase Annual Payments
One additional principle payment every year can make a great difference on the subsequent monthly repayments. Alternatively, increasing monthly repayments by a fixed amount can also reduce the debt burden at the end of the year. Reportedly, it is possible to pay up to 10 percent of the outstanding loan amount each year, without being penalized even with a fixed rate in most cases. Some lenders though may not allow this flexibility for real estate Philippines and other countries, in which case over payments above certain limits are bound to incur penalty. It is wise to check mortgage terms, do the math, and pay up accordingly. This option can result in decent savings on interest and freedom from debt several years ahead of the original loan term. Increasing the regular repayment amount, repayment frequency or both will greatly help you get out of debts much faster.
Make the Best of Any Additional Funds for Bulk Payments
Financial returns from other investments such as fixed deposits or bonds, when used to pay up the home loan, are bound to have a telling impact on the outstanding amount and subsequent repayments. Redirecting monetary benefits from annual bonuses, inheritance, gifts, tax refunds, or even winnings from casual gaming towards home loan repayments also have the same effect. One or more of these solutions can also be judiciously applied to pay off a home loan, without shouldering the burden of debt for years together. However, if you cannot afford a home loan, renting is a practical alternative.