Tips to reduce your home loan tenure

Reducing Your Home Loan Tenure: Strategies for Saving Money and Becoming Debt-Free Faster

Owning a home is a dream for many, and for most people, this dream is made possible through a home loan. While home loans enable people to purchase a property without needing to have all the cash upfront, the long tenure and interest payments mean that the actual cost of the home turns out to be much higher than the purchase price. For this reason, many homeowners find themselves eager to shorten the length of their home loan. By reducing your loan tenure, you pay less in interest, own your home outright sooner, and gain financial freedom. Here are practical tips that can help you reduce your home loan tenure effectively.

1. Make Fortnightly Payments:

One simple change you can make is switching from monthly to fortnightly payments. This approach can help reduce your home loan tenure significantly. By paying half your monthly installment every two weeks, you end up making one extra payment each year. Since there are 52 weeks in a year, this strategy amounts to 26 half-payments, or 13 full monthly payments in total. This extra payment goes straight toward the principal, reducing the interest over time.

2. Round-Up Your Payments:

Sometimes, the simplest methods can be very effective. Instead of paying the exact amount due each month, consider rounding up your payment. For instance, if your monthly payment is $1,450, consider rounding it up to $1,500. The extra $50 will be applied to the loan’s principal. This not only accelerates your loan’s reduction but also works with any budget increases you face, as the round-up is usually manageable.

3. Make Lump-Sum Payments Whenever Possible:

Whenever you find yourself with extra money—be it from bonuses, tax refunds, or inheritance—consider using it for a lump-sum payment on your mortgage. This extra payment results in you owing less principal, which in turn reduces the interest charged over the life of the loan. Many lenders allow you to make extra payments without a penalty, but it’s always good to check the terms of your mortgage.

4. Increase Your EMI Amount:

As your income increases over time, consider increasing your monthly EMI (equated monthly installment). By paying a little extra every month, you can significantly cut down your home loan tenure. Even a small increase can have a substantial impact over the years. This approach not only helps reduce the total interest you pay but also brings you closer to full ownership of your home faster.

5. Opt for a Loan with a Biweekly Payment Plan:

Some lenders offer loans that allow you to set up a biweekly payment plan from the onset. This option is ideal if you receive biweekly paychecks, as the payment cycle aligns with your income schedule. By choosing a lender that allows this, you can conveniently manage your finances while also reducing your loan tenure by making an additional payment each year, similarly to the fortnightly payment method.

6. Shorten the Loan Term During Refinancing:

When interest rates drop, many homeowners consider refinancing their loans to take advantage of lower rates. If you’re considering refinancing, think about shortening the term of your loan. For example, if you originally had a 30-year loan, consider switching to a 15- or 20-year term. While your monthly payments may increase, you will benefit greatly in terms of total interest paid over the life of the loan.

7. Take Advantage of Decreasing Interest Rates:

If market interest rates fall, you might be able to refinance your mortgage to a lower rate, thus reducing your loan’s interest burden. This step can enable you to pay off your loan faster without necessarily increasing your payment amount, as less of your payment will go toward interest every month. Keep an eye on market trends and consult with your lender or a financial adviser to determine if this is a viable option for you.

8. Budget for Additional Payments:

Rather than making sporadic additional payments whenever convenient, plan for them. Budgeting and setting aside a fixed amount each month for additional payments can systematically reduce your loan. Treat these additional payments like a regular expense, similar to your utilities or groceries, to create a disciplined approach toward loan reduction.

9. Choose the Right Lender:

If you’re still in the process of securing a home loan, selecting a lender who offers flexible loan terms and allows extra payments without penalty is crucial. This flexibility later affords you the freedom to make changes to your repayment strategy, including extra payments, without financial penalties.

10. Use Windfalls Wisely:

Everybody receives unexpected financial windfalls at some point, whether it’s from a work bonus, lottery, tax refund, or even gift money. Instead of spending it all, consider putting part or all of this windfall towards your mortgage. This can substantially lower your existing principal, leading to decreased interest over the life of the loan.

11. Keep Your Lifestyle in Check:

Often, as our incomes increase, so do our expenses. While it’s important to enjoy the fruits of your labor, try to keep your lifestyle inflation in check. By maintaining your expenses at a reasonable level even after income hikes, you can divert more funds toward your mortgage, thus shortening its tenure.

12. Automate Payments to Avoid Penalties:

Late payments can lead to penalties which add to your financial burden. By automating your mortgage payments, you ensure they are timely, helping you avoid added costs. Consistent, penalty-free payments mean all your payments go toward reducing your loan rather than covering unnecessary fees.

13. Regularly Review Your Home Loan Statement:

Making it a habit to review your home loan statement periodically can keep you informed about your loan’s progress. Understanding how different strategies impact your loan balance and interest can motivate you to stick with or adjust your repayment strategy. Regular reviews also help identify any discrepancies or errors that need addressing.

14. Use Online Calculators and Tools:

Numerous online tools and calculators can help you understand the impact of extra payments on your home loan. Use these tools to model different payment strategies and gain a clearer picture of how various efforts reduce both your loan tenure and total interest paid.

Consult a financial advisor to get professional advice tailored to your specific financial situation. Such guidance can offer you personalized strategies to decrease your home loan tenure. Advisors can also help you identify areas in your financial life where you might find funds to redirect toward your mortgage.

Reducing your home loan tenure is not just about financial savings; it represents a significant step toward peace of mind. Embracing a few of these strategies can help you become mortgage-free sooner, giving you more flexibility and control over your finances in the long run. Take the time to consider which options suit your lifestyle and financial goals best, and start taking steps today to reduce your mortgage tenure.