Any homeowner who is still paying his mortgage loan will never deny the fact that mortgage EMIs or equated monthly instalments constitute a big chunk of outflow. This is why most homeowners tend to prepay the loan so that they could soon get rid of mortgage debt and start feeling the joys of home ownership. Nevertheless, the strategies that are usually adopted by the borrowers to prepay their mortgage loans differ widely. If prepaying is not planned in a proper manner, it can backfire in the long run. If you don’t want that to happen, here are few tips that you should take into account.
Utilize your personal savings to prepay the loan, either partially or wholly
Deciding between paying off the outstanding EMI on your home loan and ensuring that all the income is within your discretion is indeed daunting. When homeowners use up their savings, they tend to pay off the entire outstanding amount so that they could successfully close the home loan. Though this might seem to be a viable option but at the same time this leaves you broke. In case there is an emergency later on, you might have to face dire consequences. Hence, just as you have to decide on your mortgage affordability before securing a loan, you also have to ensure considering the downsides of using up your entire savings.
Refinancing from a different bank can be another option
This strategy is often used by the homeowners to prepay their home loan. Refinancing opens up opportunities for the homeowners to reap benefits of a lower rate on a new loan which can slash off the monthly EMI or the tenure of the loan. As this option doesn’t have any impact on your savings, this is definitely a better option. However, make sure you take into account the fees and charges like the processing cost.
Increasing monthly installments to pay off loan before the loan term
Homebuyers who have the security of salaried jobs usually go for this option. Since their salary keeps increasing with the boost in their career, their pay packages and promotions lead to an increase in disposable income. Rather than spending on new clothes and gadgets after the hike in salary, it is advisable that you request your lender to boost the EMI so that you can prepay the loan sooner.
Smart loan or home saver loan
This is the latest offering by financial institutions like banks where they offer a current account that’s related to the home loan account. The total home loan balance on which the interest rate is calculated is the balance in the present account subtracted by the outstanding loan. The homebuyers are permitted to get access to the fund in case of urgent requirements.
Even when you plan to sell your home and buy a new home, you will still have to consider taking out a new loan while planning to pay off the previous one soon. Consider the above mentioned tips to prepay your loan before the loan.