Version: CN
The contents of this article were contributed by AG Sasidar, real estate professional with 5 years of experience.
Do you feel like it’s taking forever to finish paying off your mortgage loan?
We may think of paying more every month to reduce the monthly repayments, but if you’re looking to shorten your home loan tenure, this is not the way to go.
Is there a way to shorten the time taken to pay off your home loan, from 35 years to 30 years, or perhaps even 25 years? Read on to find out!
Mortgage Loan: How To Pay Off Faster
1. How to Calculate Monthly Home Loan Repayment (Principal + Interest)
The first thing you have to know is that what you’re paying is not just the price of the house – you are also paying interest on the home loan itself.
In order to solve this problem, you should know how much interest you’re paying for your home loan.
Let’s take an example:
Loan Amount: RM300,000
Interest Rate: 4.2% per year (0.35% per month)
Loan Period: 30 years
If we put this amount into a mortgage calculator, our monthly repayment amount would be RM1,467.05.
Try inserting this number into this home loan calculator:
For your first monthly payment, the interest is calculated by applying the 0.35% monthly rate to the RM300,000 loan amount.
This results in an interest charge of RM1050 for the first month (0.35% X RM300,000)!
That means, from the RM1,467.05 you paid, only RM417.05 goes to the principal payment. The bulk of it goes to interest!
| Loan balance | Total repayment | Principal payment paid | Interest paid |
| RM300,000 | RM1,467.05 | RM417.05 | RM1050 |
| RM299,582.95 | RM1,467.05 | RM418.51 | RM1,048.54 |
| RM299,164.44 | RM1,467.05 | RM419.97 | RM1,047.06 |
Unless you want to pay it off earlier, this is how you’ll be repaying your 30-year fixed loan that covers both your principal and interest.
2. How to Pay Home Loan Faster
The best way to reduce your home loan tenure is by contributing more of your payments towards the principal payment, rather than the interest.
This is known as the reducing balance method.
Reducing-Balance method
In this method, interest is calculated on the remaining loan amount after each payment.
Which means, if your remaining principal loan amount is higher, then you’re paying more interest on it.
To solve this problem, we can try to lessen the principal amount, so that we’re paying less interest throughout the loan tenure.
Principal amount ↑ = Interest ↑
Principal amount ↓ = Interest ↓
| Interest paid = Outstanding principal loan x Rate of interest |
What Should You Do To Pay Home Loan Faster?
As mentioned above, paying more every month will not reduce your principal loan amount.
So what you can do is to go to your bank’s Mortgage Department and let them know that you plan to pay the principal payment.
They will give you the minimum amount, and if you have enough money to pay off this amount, you can make a one-time payment through the bank itself or online.
This way, you will be able to reduce the duration of your loan, e.g. from 35 to 30 years, plus save up on interest payments.
Most will ask for help for this from agencies, but this just adds more cost, so we suggest to do it yourself.
Note: Before you do this, make sure that the loan you currently have does not penalise you for paying your loan early.
3. Should You Pay Your Home Loan Early?
There are some benefits to paying off your home loan quicker:
- Save up to 50% of the house price with less interest paid
- Peace of mind, assuming you have no other loans
- Being debt-free, giving you protection from losing your home
- More savings for other use such as travel or retirement
If you have the financial capability to pay off your home loan faster, you could be saving a whole lot of money in the long run.
4. What Happens if You Cannot Pay the Home Loan?
In cases where you don’t have enough funds to pay off your home loan, here’s what you should look out for:
Penalty fees
A reduced term might mean you’re paying more every month.
In cases where you might not be able to keep up with the instalments, you might be charged a penalty fee.
Don’t ignore this penalty fee, as it might compound into even bigger interest, which means more payments!
Inform your bank
If you’re going through a difficult time and don’t have the capacity to repay your home loan, visit and inform your bank as soon as possible.
Worse comes to worst, if you’re out of options, the bank might repossess your assets and file you for bankruptcy.
So make sure you contact your bank as soon as possible if any financial troubles occur!
The contents of this article were contributed by AG Sasidar.
AG Sasidar is one of the Head of Teams from IQI Elite, with 5 years of experience in the real estate industry. He is also the first Indian real estate influencer in Malaysia, focusing on helping Indian buyers realize their home ownership dreams and sharing real estate knowledge through social media.
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