Meta Description: A mortgage loan can be a long-term financial burden, but it doesn’t have to hurt your wallet. Find out how to reduce your home loan and save money in the long run!

Most mortgage loans in the last few years (if not decades) have become a major long-term commitment and a huge investment of time, resources, and of course, money.

If you are looking to make the most of your income by cutting costs, your mortgage loan is the best place to start. Here are some ways to reduce your equated monthly installment (EMI).

Refinance

One way to reduce your monthly payment is to refinance your mortgage. This can reduce your interest rates, get you better terms, and help you save money in the long run.

Refinancing is worthwhile if you can reduce your interest rate even by just 1%. However, keep in mind that you’re basically taking out a new loan – this means that you have to pay for an appraisal, title search, application, and closing costs again. This can cost anywhere from 2-5% of the loan principal. Make sure to do the math first to see if refinancing is a smart financial move.

In addition to other requirements, you'll need enough equity in your house to qualify for a refinance. If your equity is less than 20%, you have to pay for private mortgage insurance.

Transfer To A New Lender

Even though banks and mortgage companies all offer house loans, their interest rates can vary wildly from lender to lender. If you want to get the best rates, treat your mortgage loan like you would other financial products: shop around, compare rates, and find the best one for you. There are two potential outcomes, and both are a win for you:

• You find a new lender with better rates.

• Your current lender counter-offers by waiving charges or lowering your rates.

Negotiate The Loan Terms

Lenders are not legally bound to offer you the best rates or conditions, especially at first. Don’t be afraid to ask if there are better offers or loan terms. Even slightly lower rates or waived fees can significantly reduce how much you pay in the long term.

When haggling with the lender, keep in mind the different factors that affect your loan repayments. This includes interest rates, loan terms, and fees. Be cautious and take your time to review different quotes, as lenders may offer a good deal in one aspect only to “make up for it” by changing another.

Overpay

Taking out a loan is not that difficult, but repaying it often is. If you want a smooth loan payback process with lower EMIs, then overpaying is the route to take – if you can afford it.

According to the American Financial Group (AFG), you can significantly reduce your balance and fast-track homeownership by paying more than your contracted mortgage repayment amount every month.

Here’s the math behind it: your interest is calculated based on how much you have left to pay. If you pay more than the required amount every month, your loan amount reduces faster. Since your loan amount is now less than it normally would be if you didn’t overpay, your interest will also be lower.

This reduces the time it will take to completely repay your loan. On a $500,000 mortgage with a 25-year term, paying just an extra $200 per month would cut the term by approximately 3 years.

Most lenders give you the option of paying a portion of your mortgage in a lump sum. If you're lucky enough to get a sum of money that isn’t your regular income (e.g. an inheritance), you might want to use this to pay off a significant part of your mortgage loan.

Get An Offset Sub-Account

A transaction account tied to your house loan is known as an offset account. An offset sub-account is a feature of home loans that lowers the amount of interest you pay on your loan, helping you pay it off sooner.

Any money you have in this account is deducted from your loan balance. For example, suppose you have a $500,000 loan and $20,000 in your offset sub-account. Your lender will calculate interest based only on the balance of $480,000 rather than the entire loan amount. This helps you save on interest, which could amount to thousands of dollars over the life of the loan.

You can also withdraw funds from your account if you need them, although this will impact your balance.

Choose Shorter Terms

Loan payback time is a critical factor in how much your loan payments cost. With longer terms (e.g. 20 or 30 years), the balance is spread out over more time – this results in low EMIs.

While this may be easier on your monthly budget, you actually pay more over the life of the loan due to the increased interest. A shorter payback period may cost more every month, but you save more money in the long run. Before deciding on terms, consider the total cost of both plus the potential strain it could put on your monthly finances.

Look For Seasonal Discounts And Deals

Many lenders offer special discounts during festivals or holidays. Keep an eye out for seasonal price drops, low borrowing rates, and other deals.

Conclusion

Home loans can quickly become a financial burden to homeowners. Thankfully, this burden can be reduced by different means including refinancing, moving over to a new lender, overpaying, and taking advantage of seasonal discounts. These methods can lead to a substantial reduction on your home loan and could help you save thousands of dollars.

If you need help reducing your mortgage loan, contact Wesley Financial Group to learn about your options!