As a home owner, you’re probably aware about the soaring interest rates on mortgage loans, which is one of the main fears among first home buyers. With property prices going through the roof, so are bank interest rates. However, buyers are not without the option of shrinking the interest rates by opting for the right payment methods.

Make Extra Repayments
Making extra repayments would reduce the time to pay off the loan and you pay less in interest. The simple logic is that the sooner you pay off your loan, the more money you save in interest payments. The more you pay, the more you save. Time is money!
Extra lump sums or regular additional repayments will help you cut many years off the term of your loan.

Make More Frequent Repayments
Most banks allow you to repay your loan monthly fortnightly or weekly. By paying your loan fortnightly or weekly (rather than monthly), you get to reduce the term and cost of your loan. How does it work?

Split your monthly payment in two and pay every fortnight. You'll hardly feel the difference in terms of your income, but it could save you thousands of Ringgit over the term of your loan. The reason for this is that there are 26 fortnights in a year, but only 12 months. Paying fortnightly means that you will be effectively making 13 monthly payments every year and this can make a big difference!

For example, if you take up a loan of RM100,000 at 6.75% for 25 years, your monthly instalments will be about be about RM691. This equates to a total repayment of RM207,203 over the term of your loan. By paying fortnightly, you will save RM22,602 in interest and 4.4 years off the loan.

Pay all your mortgage costs upfront
Some loan packages finance all your mortgage fees and expenses, ie, legal fees, stamp duty, disbursements, valuation fee and Mortgage Reducing Term Assurance. Don’t kid yourself. Such benefits are all added into the loan package concerned, either directly by adding to the amount of the loan or indirectly by charging you higher interest rates or a penalty fee if you do prepay your loan within 5 years. You are better off coming up with cash for your upfront costs. While this can seem a blessing, try to avoid doing this.

Refinance and save
One of the best ways to repay your loan quickly is to refinance your loan to a lower rate but don’t change the amount of repayment. This means you continue to pay as if the interest rate is the higher existing rate.

However make enquiries on what it will cost you to refinance. For example, there may be penalty fees payable on your existing loan and legal fee, stamp duty and valuation fees payable for your new loan. Work it all out and see if it makes financial sense to refinance.


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