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Sunday, December 28, 2008

Tips on mortgage

How to reduce interest payment of housing loan

Buying property often involve financing especially for first time home buyer. Most people buy their property when they are young and not financially strong yet.So they go for financing.

What is home mortage or housing loan?

A home mortgage or housing loan is a long-term credit that a house buyer or a house owner obtains from a financial institution to finance his property purchase or refinance his existing property.

In general , the subject property or house is used as the collateral for the mortgage, thus the term "home mortgage" is commonly used to described credit facility that is extended by the bank or financial institution. A home mortgage is usually comprised of a large loan which is why in most cases a home mortgage or home loan can take 15 , 20 or even 30 years before the borrower can pay back the due amount. In a home mortgage, the due amount to be paid by the borrower include the principal amount of the mortgage and the interest owed relative to the outstanding balance which usually translate into a fixed monthly installment over a fixed number of years.

It is possible to repay the loan earlier than the stipulated repayment period by making lump sum payment midway through the loan tenure and most bank or financial institution require prior notice to be given or some may only allow such lump sum repayment at end of financial year with ample notice. Paying off the housing loan earlier in this manner save the borrower a lot of interest charges but the only disadvantage is that the fund that is being used to repay the loan in the lump sum manner is no longer liquid unless the property or house is refinanced.

wish to pay off a home mortgage quickly?

First and the foremost, the person must be sure that he or she has a stable source of income. He has to ensure that paying off his mortgage will not over-extend his cash flow. There are many such considerations that should be carefully planned and organized before deciding to pay-off home mortgage. Second, a person should have money reserve for emergencies.It's not advisible to force your self by paying off quickly if you cant afford it.

There are many kinds of housing loan products in the market. In particular there is a type of housing loan that is offered as an overdraft facility rather than the term loan which is to be repaid over over a fixed term.

What is Overdraft?

The overdraft facility that is offered in place of the term loan does not limit borrower to deposit any amount more than their monthly installment at anytime and how many times to reduce loan interest. Every money( ringgit) deposited into the account will reduce the loan principal and cut interest cost and thus shorten repayment period. In addition the amount that is deposited earlier than required can always be withdrawn to meet individual financial need so long as the account is operated within the allowable limit. Therefore borrower can deposit even their salary as soon as they receive it and later withdraw by writing a cheque be it for personal use or to pay bills but in the mean time the principal amount is reduced until the amount is withdrawn. The borrower can deposit whatever fund they have to pay off the loan as soon as they wish and still have no worry as the fund is always available in case of emergency.

Therefore be sure to consider the various option available when you decide to take a housing loan. So that you can reduce the interest and paying off your home mortgage earlier After all, nothing beats a worry-free and debt-free financial status.

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