If you have a home loan with a bank or any financial institution, chances are you are paying your home loan on a monthly installment, and most likely for a tenure of 20 years or more. There are many ways to save on the interest charged on a home loan as well as to shorten the tenure of the loan without breaking your bank. My option is a simple one and you may already know this too.
Instead of paying your mortgage repayments on a monthly basis, you can opt to pay them on a bi-weekly basis. Just divide the monthly installment amount by two and pay your loan twice a month before your payment due date. Some banks will also let you pay on a weekly basis if you would prefer the option.
By paying bi-weekly or weekly, you effectively are paying a little more than your monthly repayments. As an illustration, let’s do a weekly repayment versus a monthly one. Let’s say that you need to pay RM1,000 a month on your home loan. In 12 months, you would have paid RM12,000. If you opt to pay weekly, you will pay RM250 a week for 52 weeks, and at the end of 12 months, you would have paid RM13,000.
Since most home loans’ interests are based on daily rest, by paying more via the weekly or bi-weekly repayments, you actually pay less on interests since you are offsetting more of your principle amount. Not only do you save a couple thousands on interest over the years, you will also be able to reduce your home loan tenure by a few years.
Of course some people don’t like the hassle of paying bi-weekly or weekly, especially so if they do not use online banking. So they opt to pay more on their monthly installment instead. This works too. But for those who don’t wish to fork out more every month, doing this bi-weekly or weekly repayment may work well for you.
If you are keen on doing this, check with your financial institution if they allow such repayment periods because some banks may not accept it. As far as I know, most of the foreign banks in the country allow this repayment method. You may want to check on the local banks if you bank with them.
{ 4 comments… read them below or add one }
One thing to note here is the transaction fees. If you are using bank A to pay the home loan in bank B, it’ll be expensive to pay by weekly basis. Even if you are paying from the same bank, always check if there’s any hidden cost for the transaction.
That’s a good point, Alvin. I happen to get free internet Giro services so I forgot about the fees on inter-bank transactions! Thanks for pointing it out.
For every dollar you pay “extra” to reduce your loan, you would save on the interest. However, you would also lose the opportunity for your money (that you paid extra) to earn money for you.
Thus, i believe a better use of money is by comparing what you would save by paying “extra” (which is the housing loan’s interest rate) vs what would you hae earned with your money (your conservative rate of return on your money over your housing loan period).
For some, it might be better to pay off (especially for the ones who don’t know/ aren’t sure about investments). For some, it might be better off to invest the extra instead.
If you are paying extra every month, make sure that the amount you,ve paid are for priciple reduction. Most of it goes to a suspend account.