In yet another move to help the public, the Government has called upon the Association of Banks to cut installment payments for their mortgage owners.
With the reduction, the association said all commercial banks had agreed to cut loan repayment amounts across the board and maintain the original repayment period. However, it said borrowers also had the option of maintaining their monthly instalment amounts and have a shorter repayment period. (source)
It sounds almost too good to be true so should you opt for reducing your loan repayments? Find out below.
Should You Reduce Your Loan Repayments?
This move to reduce housing loan repayments has been made possible only because of the reduction in the Overnight Policy Rate by Bank Negara on Tuesday. However, what will happen when the rate increases in the next few years and you have been making reduced payments on your loan? Your mortgage will naturally increase again with the rise of interest rates resulting in heftier monthly repayments or possibly a prolonged loan period. This is definitely not something you will want to experience as you should be looking at increasing your retirement funds as you move down your career path instead of increasing your liabilities.
Take Advantage of Reduced Interest Rates
If you can still afford it, do check with your bank or mortgage financier how you can maintain your monthly repayments. It works to your advantage as well if you have spare cash as putting in higher monthly repayments when interest rates are low will reduce your principal mortgage faster. Putting in large sums of savings into your loan account will also offset portions of your principal sum to reduce your future interest payments and shortern your loan tenure.
There money saving tips will help you towards your debt free target faster and within a shorter period! Someone once said that banks are always the first to remove the umbrella in times of heavy rain and hence, one should be careful of the umbrella offer in the first place.