5 of the better ways to pay off your mortgage faster

By Hora Kou

While flats have helped keep housing affordable in Singapore, these flats still cost hundreds of thousands of dollars, which means most people have to take out a home loan to finance their purchase. Below, we discuss different loan options for buying a flat, depending on whether you prefer fixed or variable interest rates.

Why you should pay off your mortgage

Taking out a mortgage is a big decision because it commits you to a repayment plan. It’s possible to switch to another mortgage after three, five or seven years, depending on the individual. This means that a big flat purchase comes with a significant level of financial commitment. A suitable mortgage can help pay off your home over a more extended period, but interest payments are not necessarily the best way to repay the loan. If you prefer not to take on long-term debt and don’t mind committing to a fixed interest rate, you can make your monthly mortgage payments even more manageable. A fixed interest rate provides a steady income even if the interest rate on your home loan increases.

How to pay off your mortgage

To pay off your mortgage, you need to make a monthly loan payment to the Mortgage Saver Account. This account allows you to automatically collect your mortgage payments in small instalments that you can use to repay your loan. However, if you plan to pay off your mortgage in full, you will need to opt for a less frequent fixed-rate repayment plan, which may mean a significantly higher monthly amount. Fixed-rate loans In the current market, many mortgages in Singapore are fixed-rate loans. This means that the annual interest rate is fixed for the life of the loan, meaning that the loan repayments are fixed and cannot be reduced or increased.

Ways to repay your mortgage

There are two ways to pay off your loan faster – interest-only (IO) and repayment-only (PO). Interest-only, you only pay interest on the outstanding loan amount, which means you need less money to repay the loan. Interest-only mortgage People with IO mortgages pay off their mortgage over a more extended period. For example, a 51-year-old resident who buys an $820,000 flat will pay off her $1 million debt in 22 years. Over the next 18 years, she will have to repay an additional $151,000 as her loan has a fixed interest rate of 3.08% per annum. She pays only an additional $7,210 per year with the interest-only plan because the interest is not compounded.

Conclusion

Buying a flat can be a significant investment, but there are specific considerations to make before buying and applying certain loan options. The lending process also takes a long time. Although your mortgage application will likely be approved quickly, the process is still a major headache. The good news is that you possess various options to consider, and there is no right or wrong decision. It pays to complete your homework and consult with a real estate agent to find the right property for you. To discover more about the different loan options for buying a flat, visit a mortgage broker in Singapore today