In today’s world, there are a lot of people who have taken loans to buy a house. However, after taking a loan and buying a house, people need help to repay the loan amount.
There are many ways to reduce your home loan repayment or get rid of it, like you can refinance home loan easily. Here are some solutions:
Make a bigger down payment to reduce your home loan amount
If your home loan is based on a 20% deposit, you can save yourself 10% of the purchase price by making a bigger down payment. For example, if you buy an $800K home and make a 10% deposit ($80K), your weekly repayments will be lower than if you used a 20% deposit.
This is because the total amount of borrowing for your home loan will be reduced by 20%.
The downside to making a bigger down payment is that it may mean having less cash available for other expenses during the buying process. However, this can be managed by either taking out smaller loans or using unsecured credit lines or overdrafts from other financial institutions.
Opt for the right loan tenure based on your eligibility to repay
To reduce your monthly EMI, it is better to opt for a longer tenure as it will lower your monthly EMI. However, if your credit profile allows you to shorten the loan term, you can do so, as that will reduce your EMIs drastically.
Reduce the Interest Rate by switching your lender
Switching your lender can be a great way to reduce the interest rate on your loan; how so?
- The interest rate has likely increased if you have been paying off your home loan for several years. This means that the principal amount of the loan has been reduced due to higher monthly payments, but the actual amount owed has not changed. By switching to another lender who offers better rates and then making an additional lump sum payment, you will reduce the total amount payable on your loan and save money in interest over time.
- Some people with variable rate loans can switch from one lender who offers them better rates at lower risk (for example, because the government backs them) to another service provider, which provides more flexibility when it comes to changing between fixed/variable contracts if necessary.
SoFi experts say, “A new mortgage refinancing rate can be a big game changer for your finances.”
Reducing other debt associated with consumer credit or credit cards can also help free up cash flows which in turn could be redirected into reducing home loan repayments further. In some cases this could also mean refinancing to move all debts associated with consumer goods into one single debt thereby allowing for potentially reduced monthly repayments due to consolidating multiple small loans into one larger one with better rates and terms.
Use other loan products from the same lender along with the home loan
It is always advisable to use the same lender for other loan products. For example, if you are planning to take a personal or car loan, make sure you get it from the same lender offering your home loan. This can help you reduce the interest rate on your home loan, improve its tenure, and reduce its amount by using other products.
With the help of these tips, you can negotiate with your lender to get a home loan that suits your needs and finances. But before you go ahead with any decision, take some time to evaluate all your options and then make an informed decision. Home loans are a big investment for anyone, so it is important not just for the borrower but also for the lender.
Considerations Before Reducing Your Home Loan Repayment
Reducing your home loan repayment can be a great way to save money, but it’s important to understand the potential consequences of doing so. Before making any decisions, take some time to consider the following factors:
- Interest Costs: Reducing your repayment amount means more of your monthly payment will go towards interest costs. This may be beneficial in the short term as you save money on your monthly payment, but in the long-term it means you’ll pay higher overall costs due to interest charges.
- Loan Term: You may find that reducing your repayment amount has an effect on the total loan term. Depending on the change you plan to make, this could mean that you ultimately pay more interest over time or it could extend the life of your loan by many years.
- Mortgage Insurance: If applicable and applicable on your loan, reducing your payments can have an effect on when (or if) you cancel this insurance fee. It’s important to understand if and how this will be impacted before making any changes to your repayment amount.
- Financial Obligations: It’s important to think about not only what reducing your loan repayments will mean for you financially today but also what other financial obligations you might need to adjust or cancel in order for you to make lower payments later down the line. For example, paying into a retirement fund each month may need to be sacrificed in order for your budget for reduced home loan payments each month.
There are a range of strategies to help you reduce your home loan repayment, but the best approach is to structure your loan in a way that lets you make the most of available incentives and repayment options. Many homeowners can save much more by making small changes but as always, it’s important to discuss any major changes with your lender first.
In addition, it’s wise to consider the long-term implications of any decisions you make – from selecting an adjustable-rate loan over a fixed-rate one or utilizing property tax deductions. With discipline and careful planning, you can find the mortgage that gives you the highest return possible without biting into too much of your disposable income or unwittingly setting yourself up for future financial woes.
Some of the strategies to consider include:
- Selecting an adjustable-rate loan over a fixed-rate one.
- Utilizing property tax deductions.
- Making small changes to reduce your home loan repayment.
- Discussing any major changes with your lender first.
- Consider the long-term implications of any decisions you make.