Ways to Repay Mortgage Loan Quickly

Many people confuse home loans with mortgage loans. However, there is a major difference between the two. While a home loan is a secured loan that is obtained to purchase a property by offering it as collateral, a mortgage loan has no restrictions on the usage of the loan amount. It can be used to finance businesses as well as personal needs except speculation A mortgage loan is a loan that is taken by keeping your property as collateral. Mortgage loans are easier to get approval on since the lender gets to keep collateral as assurance of debt repayment. Till the time your debt is not repaid in full, you cannot sell the property placed as collateral for the mortgage loan. Hence, many people try to make quicker mortgage repayments to get back complete control of their finances as soon as possible.

Before you apply for a mortgage loan, it is better to get a fresh understanding of your finances and compare your monthly budget against your monthly EMI. This will help you calculate how much extra money you can allocate each month towards payment of your mortgage loan. Once you have your numbers in place, you can make plans to pre-pay your debt swiftly. To help you with some mortgage advice, here are three methods by which you can pay off your mortgage loan quickly.

Make extra payments whenever possible

To clear off your loan before its scheduled termination date, it is essential to make extra payments to the lender. These are instalments you pay to the lender other than your monthly EMI. Do check with your lender if they charge any fee for making an extra loan repayment and plan your instalments accordingly. You can make an extra payment whenever you like. However, it is better to plan these payments and either pay them quarterly, twice a year, or annually. The additional payment can be made using your savings, tax rebates, bonuses, or capital gains from investments, among many other options. Making extra payments will shorten the tenure of your mortgage loan and help you save a significant amount of money on your loan interest. Just ensure that these extra payments are affordable and do not eat into other expenses you have.

Select a higher monthly EMI

Selecting a higher monthly instalment is the fastest way to pay off a loan. A high monthly EMI will help you shorten your loan tenure quite significantly. Lenders providing mortgage loans can charge a floating interest rate or a fixed interest rate on your debt. If you have a mortgage loan that charges you a fixed interest rate, you may need to pay the penalty for the pre-payment of your debt. As a result, you may not want to make any extra payments on the loan. Thus, it is best to be calculative in your approach and select right EMIs beforehand. This will help you avoid any penalties you may need to pay for repaying your debt before its scheduled termination date.

On the other hand, if you have applied for a mortgage loan that charges you a floating interest rate, your monthly EMI may decrease if the running interest rate in the market falls. However, you should keep in mind to continue paying a high monthly EMI. This will help you significantly shorten the time taken to repay mortgage and help you save a lot of money on the interest you will owe.

Do not miss your monthly payments

It is important that you plan your monthly payments before you apply for a mortgage loan. This will help you avoid defaulting on your loan due to the insufficient availability of cash. Paying your monthly EMIs on time is crucial towards clearing off your debt quickly. This is because missing your scheduled payments can cause you to pay a penalty on the subsequent EMI payments and hence, increase the amount of your instalment. This may compel you to lengthen the tenure of your loan to be able to manage the expenses. Furthermore, missing your monthly EMI would also negatively affect your CIBIL score; this will make it difficult for you to procure other loans in the future.

Quick tip :You can also consider refinancing your mortgage loan in order to pay it off quickly.

Why should you repay your mortgage loan faster?

Settling a loan early is advantageous for you. A loan is a form of liability, and hence the pre-payment of loan helps you take better control of your finances. When you have no EMIs to pay, you can use your money for any other important expenses or goals. This would not possible if you have debt. You always need to track your expenses when you have a loan and make sure that no matter what, you have the EMI ready every month. Moreover, the EMI for a mortgage loan is usually of a high amount, and it can compel you to cut down on other monthly expenses. However, if you repay a mortgage loan faster, you can utilise your hard-earned money for other important goals and dreams, such as a holiday you have always wanted to go on.

Before you plan to pay off your mortgage loan early, do talk to a mortgage advisor. Ask them to clearly explain any penalties that may be involved. This way, you can compare the pre-payment penalties you would owe against what you would pay if you let the mortgage run its full tenure and take a good decision.

Points to consider:

If you are taking a mortgage loan for the first time, here are a few points to keep in mind:

Choose wisely between prepaying your loan and making an investment

Do not cross your financial limits only to pre-pay the loan. Keep your investment goals in mind when strategising the pre-payment of your mortgage loan. It is always better to check if it is more profitable to pre-pay the loan or invest the extra money and garner a larger financial corpus. Thus decision regarding pre-payment should be made only after assessing its opportunity cost.

Choose a shorter loan tenure but do not compromise on the repayments of other debts

It is better to select a shorter loan tenure only after carefully understanding your finances. You need to factor in the repayments of any other debt that you may have. It is better to pay off personal loan and other such debts that charge you a high-interest rate before pre-paying your mortgage loan. However, if choosing a shorter tenure for the repayment of your mortgage loan fits your budget, you can save a lot of money on the interest.

Get a mortgage loan at an interest rate is comfortable for you

It is important to choose the right lender who offers you an interest rate that is suitable to your budget. Hence, do your research and find the lender that charges you the type of interest rate (fixed or floating) that you prefer. Choosing a lender that charges a low interest will also help you reduce your EMI.

Key Takeaways

• Clearing up your mortgage loan before its scheduled termination can help you reduce your interest and give you peace of mind.
• You can clear off your debt quickly by asking the lender to refinance your loan to a shorter tenure.
• Choosing a higher monthly EMI instalment can help you shorten your mortgage loan tenure and reduce your interest.
• Make extra payments whenever possible to boost the repayment of your loan.
• Do not go out of your comfort zone to pay loan faster. You should consider paying off other debts that charge you a higher interest rate before you decide to start pre-paying your mortgage loan.