Is It True That Fortnightly Repayments Pay My Home Loan Off Faster?

A mortgage can be quite a drain on your long-term financial health, and it can ultimately cost more than most people expect.

For example, with a $400,000 home loan paid over a standard 30-year period using an average interest rate of 5.50% you will be paying almost $680,000 back to the bank which includes interest of almost $280,000.

Obviously, you don’t want to pay any more than absolutely necessary!

What About Increasing Your Repayments

If you have extra money available to throw at your mortgage it is always a good idea to increase your repayments now while you may be able to afford it. An extra $100 per week would see this $400,000 mortgage be paid off just over 9-years earlier which would mean saving almost $150,000 in the interest that you would pay.

But can you afford an extra $100 per week right now?

Many people can’t and so a subtle way to pay your mortgage off faster is to switch from monthly to fortnightly repayments.

Paying Fortnightly Repayments

One way to save on your home loan is to set up fortnightly repayments.

Effectively, you’ll make a full extra monthly home loan payment each year, which can cut years off your loan while saving you thousands in interest.

With a fortnightly repayment plan, instead of paying your entire mortgage payment once a month, you pay half of the standard amount on a specified date every two weeks and over the course of a year you’ll make 26 half-payments which are equivalent to 13 full payments.

This seems a lot less painless than increasing your monthly home loan repayments and you might be surprised how much of a difference this can make.

For example: with a $400,000 home loan paid over a standard 30-year period using an average interest rate of 5.50% the monthly repayments would be $2,271 but by paying half that amount ever 2-weeks ($1,135 fortnightly) you will slice 5-years off your mortgage and save over $80,000.

You will be paying an additional two payments each year which equates to an extra $188 each month, but most people will hardly notice the difference.

Protect Your Repayments Too

A fortnightly repayments plan can be effective but only providing that you are able to continue to earn money to meet those repayments.

It is always recommended to have some form of mortgage protection cover or income cover. This helps provide some level of cover should you be unable to work and therefore your pay stops. These insurances are quite complex and can be expensive if not structured correctly and for that reason I would encourage you to seek help from myself or your insurance adviser.

The other way is to have some passive income – that is income that will continue if you are unable to work. Many people are now starting home businesses and internet businesses in an effort to create a passive income stream. Of course there are some scams out there but some are good too and with a little effort anyone can create an additional passive income.

Speak To Your Mortgage Broker

Make sure you speak to your mortgage broker.

We have mentioned quite briefly how this works, but if you are serious about paying your home loan off faster, then a mortgage broker can share a range of ideas that can certainly help you.

There have been plenty of articles written that show that if set up wrong then there are no benefits and this is true. Good Returns has written about this back in 2007 and interviewed a top mortgage broker, and the logic remains so it is worth reading that article too.

CLICK HERE to read the article.

Obviously, you don’t want to pay any more than absolutely necessary on your home loan and therefore looking at ways that will benefit you is a worthwhile thing to be spending some time at, but don’t forget to have a chat to a mortgage broker too.

At North West Mortgages we know how to structure home loans to ensure that you do pay yours off faster.