Getting a home loan is a very big commitment as it means that you owe hundred thousand Kenyan shillings to the lender and could take years to repay. Hence, here are some tips that can speed up the process of paying all the money owed back.
Choose the right loan
Before everything else make sure you have the right home loan product in regards to your circumstances. Put into consideration all the things that are important to you. This is because committing yourself into a long-term fixed rate loan can hinder your ability to pay the loan faster. Many lenders may add few fees if you try to pay the loan faster than anticipated. Therefore, opt for a variable rate home loan.
Avoid interest only repayments
Many lenders give you a chance to pay just interest on the home loan leading to lower monthly bills but there is always a catch. If you pay the interest only you put off paying the principal amount for a while. The principal need to be paid, if you are going to clear your loan faster. Ensure you get a principal and interest loan so you can start repaying the principal right away. Any extra repayments you can make will lessen the effects of compound interest.
Pretend that the loan has a higher interest rate
If the loan has a 3% interest rate, assume it has 4% interest rate. The extra “interest payments” will not go to the interest but the principal and hence reducing the loan principal. This results to you paying the loan faster.
Avoid life’s luxuries
Take a moment and think about all the things you spend your money on that you really don’t need. Make cuts where you can. If you avoid life’s little luxuries and put that money into repaying your home loan then you will finishing paying it off faster than you deem possible.
Don’t get lazy
A lot of people get comfortable with their home loans. They just pay what the lender expects them to, without keeping an eye on the industry. Lenders offer various deals at different times of the year. With good timing, you could switch your loan with a different lender and end up repaying your loan faster due to discounts offered.
Pay the first installment early
Every step towards repaying your loan helps. Start from the beginning and instead of waiting for a month before making the first repayment make it early. As a result your first repayment becomes your second and so on. Even if everything else fails, you will always be a month ahead.
Split your repayments
Many people make monthly repayments on their home loans. This keeps things simple, but it slows you down. Instead, split your payments and make half of the monthly repayment eery two weeks. This helps because instead of making the expected 12 repayments per year, you make 26 repayments. This is each at half of what your monthly repayments were and as a result you make an extra full repayment each year.
The information above is general in nature, so seek professional advice before making final financial decisions.