In the Philippines, paying off your housing loan long before it matures comes with great rewards. Pruning the largest debt you might ever have fast can increase your purchase power significantly and free up resources for different investments.
Considering most interest rates are subject to change every few years, you save tens of thousands of pesos, or more, by simply finishing your loan early.
To accomplish that, consider these clever strategies.
Keep the Term Short
Lancaster reviews would encourage you to shorten your term to minimize the life of your loan and pay less interest over time. Of course, this would mean higher monthly amortization, but don’t mind the increase if you have the capacity to pay for it regularly.
If the amortization is equivalent to 30% of your gross monthly income, you can be in a good position to manage your housing loan repayment.
Make Bi-Weekly Payments
Generally, housing loans are billed once a month. But if you get paid bi-weekly, you can set aside half of your payment every paycheck to pay your mortgage one month more every year.
Since there are 56 weeks in one calendar year, a bi-weekly payment strategy demands you to pay half of your mortgage bill 28 times from January to December.
If you think about it, a total of 28 weeks’ worth of housing loan payments is equivalent to 13 months. If you can sustain this prepayment scheme, you can pay your mortgage off several years early.
Pay Lump Sums
Every extra mortgage payment you make should directly trim your principal or the money you borrowed. Considering your loan finishes when the principal is paid to the last centavo, paying in lump sums can significantly reduce it quickly.
If you have no better thing to do with your 13th-month pay or any other bonus, use it to pay your mortgage before it’s due.
Prepayment is certainly advantageous to you, but your lender might not approve of it. Make sure the contract doesn’t say any early termination penalty to pay off your mortgage early without dealing with extra fees.