Here’s What You Should Know Before You Pay Off Your Home Loan Early

By Jen-Li Lim / | October 8, 2018 11:50 AM SGT
Having debt can be a psychological burden. When you have something as large like your mortgage loan looming over you, you may be tempted to pay it off as soon as you can. However, this may not always be the best decision – here are a few things you should consider before settling your home loan early.
Settling your mortgage loan earlier means paying less interest
The faster you pay off your home loan, the less interest you pay.
Here are a few ways you can consider settling your loan earlier, and their impact on the amount of interest you will be paying.
Scenario 1: Refinancing or repricing to a shorter-term loan
Refinancing means replacing your existing home loan with a new home loan from another bank. Repricing also involves replacing your existing home loan with another home loan, but within your current bank.
When you refinance or reprice, you can switch to another home loan with a shorter loan tenure. Here’s how different loan tenures affect your interest payments:
A shorter loan tenure means paying substantially less interest. The difference between a 20-year tenure and a 25-year tenure in the scenario above, for example, is around S$46,000 in interest payments.
However, before you spring for a shorter loan tenure, you’ll need to make sure that you can cope with the higher monthly instalments that come with it:
Scenario 2: Making small, recurring partial capital repayments
What if you put away extra cash – such as your bonus – every year to pay down your mortgage? Over time, you could be saving thousands of dollars in interest. Here’s an example of how much you could save if you made an extra S$5,000 payment at the end of every year on your home loan: