One effective way to expedite your mortgage repayment is by making extra payments each month or year.
The choice between renting and owning a home remains a hot topic among individuals today. Many find homes to be prohibitively expensive in the current market.
However, for those who have opted to purchase a home, long-term housing loans, which can stretch up to 30 years, often come into play. It’s crucial to note that housing loans differ significantly from personal loans due to their extended repayment terms.
Nonetheless, here are five practical tips to assist you in swiftly settling your home loan.
#1 Deposit Over 10%
Did you know that, much like car loans, where a 10% down payment is customary, purchasing a house also necessitates a deposit? This deposit significantly affects your monthly loan instalments. The larger the deposit, the lower your monthly payments.
If feasible, consider providing a deposit of at least 15% to 20% to alleviate your monthly financial commitment. A higher deposit translates to more substantial savings.
#2 Opt for a Flexible Home Loan
Not everyone can afford substantial upfront payments when buying a home. For those unable to provide a substantial down payment, a flexible home loan might be the solution.
With a flexible home loan, you can make additional payments towards your monthly instalments. This approach helps reduce both interest rates and the overall loan duration.
However, there’s usually a fixed monthly fee of around RM5 to RM10 for maintaining your account’s flexibility.
Three types of home loans are available:
A) Basic Term
- Fixed payment terms
- No interest reduction or shortened loan tenure
- Extra payments are carried over to the following month’s instalment.
- Flexible payment terms
- Allows extra payments for faster debt clearance
- Extra payments help lower interest costs and reduce the principal sum
- You can withdraw extra payments if needed, though it takes time and incurs a withdrawal fee of RM50.
C) Full Flexi
- Offers better financing terms compared to semi-flexi
- Allows faster extra payments with a monthly fee
- Typically comes with higher interest rates, and not all banks offer this loan type.
- Select a loan that aligns with your financial capabilities and monthly budget.
#3 Make Additional Monthly Payments
If you’ve opted for a flexible loan and have additional monthly income, consider making extra payments towards your home loan every month, starting with at least RM100. This strategy can help you repay your home loan faster, especially with a flexible loan.
Not only is it more cost-effective than regular repayments with higher interest rates, but it also leads to substantial savings.
#4 Schedule Annual Overpayments
If you receive regular yearly income, such as a bonus or annual dividends from savings or investments like Amanah Saham Berhad (ASB), you can plan for annual overpayments.
For instance, if you set an annual payment of RM3,000 in addition to your monthly extra payment of RM100, it can significantly reduce both your loan amount and interest rate.
#5 Use EPF Funds for Home Loan Repayment
Another method to expedite your home loan repayment is by utilising funds from your Employees Provident Fund (EPF) Account 2. Funds from Account 2 can be used for down payments or monthly home loan instalments.
Suppose you make monthly repayments using RM50,000 from your EPF Account 2, along with an additional RM100 per month and RM3,000 annually. In that case, you can fully repay a RM300,000 home loan in just 15 years.
However, this approach is not recommended if your EPF account offers a higher dividend rate than your home loan’s interest rate, as it may result in a loss of potential interest earnings.
In conclusion, you can shorten your home loan tenure and avoid lengthy repayments. However, it all depends on your financial capability and existing savings.
Be sure to consult with your bank or financial institution to assess your monthly repayment capacity. Choose a strategy that doesn’t overburden your future finances!
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