Owning a home is a great feeling, but paying out a significant portion of your salary every month as EMI payment is not that great. In fact, the interest pay-outs on the home loan over the 20 odd year tenure tend to be larger than the principal amount that was initially borrowed. In this case, foreclosure of your home loan is the best solution because it lightens your debt burden and banks do not levy any foreclosure charges on a borrower with a floating rate home loan. Here are the tips to eliminate your mortgage loan faster.
Start paying extra
The thought of foreclosure seems intimidating, as it’s always difficult for us to trim down our monthly expenses and start saving. But try to make slightly higher EMI payments every month, this would reduce your principal amount and as a result you will be paying overall lesser interest than before. Doing this would reduce your home loan tenure by at least 2-3 years.
Take a look at your financial picture
Consider the refinancing option for your loan and take a closer look at your finances and other investments. Check the number of investments you have and the returns they are yielding. Once you assure that your investments are taking care of future financial goals then you can add up the surplus amount you have towards the foreclosure of your loan. It is advised that you should not take out your emergency funds for this purpose.
Try to do partial payments whenever possible
Many lenders allow their borrowers to make n-number of partial payments in a year. However some banks do restrict the number of partial payments one can do. You should check your bank’s provision on partial payments, and start doing it whenever you have spare funds. Instead of spending it on buying luxury items, you can utilise the money in doing prepayment of your loan. You’ll have to make some compromises but in the long run you will be getting over a huge debt.
Control your expenses
Home loan is big financial burden, but nothing matches to the satisfaction of a roof over your head. Let this thought become your motivation of saving funds, cut corners wherever possible and allocate all the money towards the prepayment of your mortgage loan. Avoid foreign holidays and other luxuries for few years of loan tenure and in this way you’ll be able to foreclose your loan early.
Do regular and timely payments
Even if you sending extra payments every time, doing late and irregular payments would charge you extra charges and penalties and you will end up paying more ultimately. Default on your payments can also get you in a trouble of financial and credit related problems. Therefore try to be regular and do timely payments of your loan EMIs.
When to make prepayment
Initial years of mortgage loan tend to have interest payment that outweighs principal payment and at the end of loan tenure, principal payment is more in comparison to interest payment. Therefore, financially it is beneficial to prepay your loan during first 7 years. But before coming to any conclusion in this regard, you must do a cost-benefit analysis and arrange your prepayment schedule accordingly.
Get your family in loop
You may be the primary earner of your family and the burden of managing the finances is on you, but when it comes on mortgage, your family should be equally involved and responsible of the pre-payment process. They may not help you in pitching up those extra payments but they can surely suggest you ways of doing so.
Using these effective strategies, you can save more and have full ownership of your home before your mortgage tenure actually ends.