Ways to Repay Mortgage Loan Quickly
09 Feb 2022
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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.
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9 Best Home Loan Tips 2022
A home not only provides a roof over your head, but also doubles up as an investment. Your property can be sold for money at some point in the future. It can also function as collateral for a loan. Home loan is one of the best ways to finance the purchase of your dream flat or house. A home loan helps you safeguard your savings and gives you all the required flexibility to repay the cost of your property with comfort and ease by the way of EMI.
Now, there are so many options of home loans available out there. Choosing just one among all these can be quite confusing. To help you get the best option, here are a few home loan tips that can prove helpful.
1. Check your CIBIL score
Home loans are typically of high amounts and long tenures; thus, they can only be given to individuals who have a good credit history. The minimum home loan credit score required by most of the banks in India is ranges between 650-750. Furthermore, your CIBIL score is directly proportional to the loan amount you are eligible for. This means that having a higher CIBIL score helps you procure loans of higher amount. Generally, having a CIBIL score of 750 and above is considered ideal for procuring a good and substantial value of a home loan. If you check your CIBIL score and find it to be below 650 or just at par with 650, it is better to work on increasing your score before applying for a home loan. Having a good CIBIL score can also help you procure a loan at a relatively lower interest rate.
It is recommended to check your CIBIL score every 3 to 6 months. This will help you keep track of your creditworthiness and devise a strategy to increase your score.
2. Start saving for a down payment
It is important to plan your finances and save up for the down payment before initiating your application for a home loan. This is, perhaps, the best home loan advice that anyone can give you. Lenders typically require you to pay 10% to 30% of the total purchase value of the house or property as down payment depending on your loan amount.
With increasing expenses, it can be quite difficult to save for your home loan down payment. However, making small changes in your monthly budget can ensure that a portion of your income is put aside in a savings account/Investment account etc. to build a corpus for the down payment.
3. Get your financial documents in order
When you take a home loan, you will be required to provide your lender with certain documents such as your recent salary slips, ITRs, and bank account statements, among other paperwork. It helps to keep these documents ready in advance so that you do not have to rush at the eleventh hour to find what you need.
The list of documents required for a home loan can vary between lenders. The documents required can change slightly depending on whether you are salaried or self-employed. Hence, it is better to check with the lender about the records that are required by them. You can easily get a list of required documents by visiting the lender’s website or by calling them up directly.
4. Use a home loan EMI calculator
Understanding your EMI payments is one of the most important home loan repayment tips to keep in mind. Calculating your monthly EMI payments before applying for a home loan can help you avoid taking on debt that you cannot afford to repay.
EMI calculations are dependent upon the interest rate charged and tenure of the loan among many other factors; hence, EMIs are not that easy to calculate manually. Fortunately, you can use the lender’s home loan EMI calculators online to get an idea of the loan amount that you can afford to borrow.
5. Select the right type of home loan
There are many different types of home loans offered by every lender. Bank of Baroda offers its customers different types of home loans including top up loan, home improvement loan, and a home loan takeover scheme, among others. Each type of home loan offers different benefits to borrowers. Hence, it is better to compare bank loans and choose the right home loan that best suits your needs.
When taking a home loan, you can also choose between a fixed interest rate home loan or a floating interest rate home loan. While a fixed interest rate loan will have a constant interest rate throughout the loan tenure, the floating interest rate will see the interest rate change as per the market.
6. Compare the different home loan offers
The cost of procuring a home loan varies between lenders too. When selecting a home loan, you should consider the interest rate charged, home loan processing fees, application fees, technical valuation charges and other such expenses before starting your application process.
To get the best home loan in 2022, do make sure to compare the different loan offers and the other ancillary costs that are associated with borrowing. This research will help you make a smart choice. Remember that a home loan is debt that you take for a long term – generally between 20 to 30 years. So, you would want to pick the best loan provider who fulfils your financial needs for peace of mind.
7. Stay connected with your lender
After you submit your loan application, the lender may require some additional information from you before processing it ahead. Giving quick responses to the lender will help you get the loan amount disbursed swiftly.
It is also imperative to stay in touch with your lender throughout the loan tenure. This will help you build trust with the lender and get the timely help if needed.
8. Keep your credit score maintained during the loan processing period
Lenders typically check your credit score before accepting your loan application. However, they can also pull up your scores again before sanctioning the loan. This helps them ensure that you are a creditworthy individual and are consistent in repaying your debts. Hence, do not get lax on your payments after the lender has accepted your home loan application. Rather, pay more attention to your credit card bills and ensure that they are paid on time. It is also better to avoid applying for new loans until your home loan is sanctioned. This will help you maintain your credit score.
9. Read all the loan related documents carefully
It is particularly important to understand the different terms and conditions of the home loan before signing the documents. Ensure that you go through the documents and get comprehensive knowledge of what you are signing up for. You can contact your lender and ask them for any help you need in understanding the fine print.
Why Choose Bank of Baroda Housing Loan?
There is no feeling like home. Buying a house brings unmatched joy and happiness in our lives. An owned home gives us a sense of security and a feeling of achievement. Long back, people had to spend numerous years saving up a corpus to finance their dream of buying a house. But today, you do not need to do so. You can simply take a home loan.
Opting for a home loan is an excellent way to finance the purchase of your dream house. This loan allows you to pay the property amount in a systematic and periodic manner. Bank of Baroda offers home loans at attractive interest rates on easy repayment terms. The maximum tenure of repayment is 30 years, and you can apply for a top-up for five times during this entire tenure.
Benefits of taking a home loan from Bank of Baroda
At Bank of Baroda, we truly believe in simplifying the process of getting finance for your home. As such, we offer a range of loans designed to meet your various requirements. From our pre-approved home loans to home improvement loans and home loan takeover scheme, there is something for everyone. Here are a few more benefits of getting your home loan from Bank of Baroda:
• Low interest rates and processing charges
• Higher loan amounts
• Free credit card
Let’s take a closer look at why you should consider opting for a Bank of Baroda home loan to buy your next or first flat or house. We will show you how to apply for home loan by discussing home loan eligibility, fees and charges, and documentation required in detail.
Bank of Baroda housing loan eligibility criteria
To help more people finance their dream home, we have put together an easy to meet eligibility criteria.
Conclusion
Signing up for a home loan is a long-term commitment. And we, at Bank of Baroda, promise to be there for you every step of the way. From helping you sail through the documentation process with ease to offering expert advice on planning your loan repayment, we have it all covered for you.
In fact, you can now apply for a housing loan with Bank of Baroda online with a matter of a few clicks. We hope this was a great read for you today.
