Earlier, we talked about how amortizations work and justified why it makes sense and more practical to pay extra on your home loan payments. In this article, we’ll help you HOW to accomplish this:
1. Overpay than the minimum monthly amortization.
One way to determine how much more should you overpay at the very least is by dividing your monthly amortization by the number of months in a year.
Using our previous example of P 15,106.91, you get:
P 15,106.91/12 = P1,258.91
P1,258.91 + P 15,106.91 = P16,365.82
2. Ask your bank to set you up with automatic debits on your salary account.
“Out of sight, out of mind.”
If this is the way you feel about your salary deductions, then you’ll eventually feel the same way with your monthly amortizations every payday.
Ask your bank if they deduct the monthly amortization amount from your salary every payday. Because you have already fulfilled your obligation through your first payment on the 15th, 100% of the extra payment you made on the 30th goes to your principal amount!
3. You can also save those salary deductions in a separate account and and pay them later as a lump-sum payment.
This is another strategy that seasoned investors can take a look into. You can ask your bank to create another account where they can put the salary deductions into (and earn interest in the process). You can decide on a day later to withdraw all the monies and put them towards your loan balance.
4. If there’s a cash windfall, consider putting a significant portion (or all of it) towards your loan principal.
13th month pay, 14th month pay, paid vacation leave encashment, job allowances, tax refunds, need I say more? Instead of eyeing for a new gadget or appliance, you can consider putting all these extra cash towards your amortization payments.
I got this idea from my mom, who works from a government. Every time she receives one of the many small bonuses the government gives to their employees, she puts most of them instead towards paying off our house and lot, or at the very least, a home improvement that would increase our home’s property value.
5. Be wary about “payment holidays” if you don’t really need it.
Exercise judgement when your lender offers you rate lock-ins, or option to skip payment for a year. Although they seem to be a great deal at first instance, you will be losing the opportunity to make amortization payments on competitive interest rates.
Lenders often offer these reasons to borrowers who do not religiously earn the same income amount per month or are anticipating exceptional expenses (i.e. borrower or borrower’s spouse on maternity leave after childbirth).
6. Reset your loan.
This option may not be commonly available for most lenders, but it makes sense to ask for one if you have made a huge payment (e.g. see #3). Once your loan resets, the lender will recompute your monthly principal and interest, but will keep the amortization payment the same.
7. Pay your mortgage bill before the due date.
This is a no brainer already. Settling your amortization before due date will help you avoid penalties when the next due date comes.
Paying off your home amortizations diligently is only half the battle to home ownership. Learn some new habits about credit or utang that you can apply after getting your home loan.
