With a variety of mortgage reduction techniques available, simple, low-risk fortnightly repayments could prove to be a very effective way to help you reach financial freedom sooner.
With fortnightly payments, essentially the concept is very simple. You make a payment every two weeks, there are 26 fortnights in a year, therefore annually you make 13 payments rather than the 12 you would make with monthly repayments.
Fortnightly payments seem remarkably simple, yet could make a profound difference in the overall repayments during the loan term. This method of repayment could help you wipe up to four years off your loan term and may help you save thousands of dollars.
If you can factor the extra repayment into your budget, you’ll hardly feel the pinch. Unlike other mortgage reduction techniques, which involve actively managing your mortgage on a monthly or even daily basis, the fortnightly payment plan can be set up as a direct debit, so you can simply ‘set and forget’.
It’s important to note that some lenders credit you with 26 payments per year, as opposed to 24 or twice-per-month payments, which are effectively the same as monthly payments. Some lenders also only offer monthly repayments on interest-only loans during the interest-only period, so it’s best to check with me that your loan facility allows you to make fortnightly repayments without any extra fees or charges.
If you are really keen to reduce your mortgage amount, your lender may allow you to set up payments over the minimum repayment, whilst keeping the amount manageable. We can talk about that.
With fortnightly repayments, not only will you better absorb the impact of interest rate movements, the extra repayments will help reduce the remaining principal balance.
Overall, it will reduce the interest you pay and the term of your loan.