Simplest strategy to pay off your mortgage quicker

Have you seen the ad for paying off your mortgage in 15 years, how about the one for 10 years or the one for 7 years! With so many mortgage reduction ‘techniques’ available, one of the simplest, low risk tactics that actually works is switching from monthly to fortnightly repayments.

Most lenders will start you off with a monthly repayment agreement, so why would you want to change to a fortnightly repayment?

By paying fortnightly you are effectively making a total of 13 monthly payments (26 divided by 2) rather than 12 calendar months – giving you one month’s extra repayment every year.

It’s a simple concept but a potent one when it comes to driving down the amount you owe on your loan. All you need to do is take your required monthly repayment, divide that by two and pay it on fortnightly basis.

Here’s what it will look like if you had a $600,000 mortgage at 2.8 percent and you applied this strategy at the start of the 30-year term:

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If you chose to stick with the lender’s required monthly repayment of $2670.80, you will pay off the mortgage in 30 years however if you follow our suggestion and change your repayment to $1335.40 per fortnight, you will pay off your home loan in 23.65 years.

And the best part is that you aren’t making any extra repayments dollar value wise, you are simply dividing your monthly repayment into two and making repayments on a fortnightly basis, no impact on your household budget at all.

And unlike other mortgage reduction methods that carry the burden of having to actively manage your mortgage on a monthly – even daily – basis, the fortnightly payment plan can be set up as a direct debit so you can simply ‘set and forget’.

It’s also less risky than other mortgage reduction methods. Just be sure to check with your lender that your loan facility allows you to make fortnightly repayments without any extra fees.

And if you really want to supercharge your mortgage reduction, calculate your monthly repayment over a shorter loan term. Say, 25 years rather than 30 and then divide that by two and set that up as your fortnightly repayments.

Any extra repayment you make, not only will it help you better absorb the impact of interest rate movements when it starts moving up, the extra repayments reduce the interest you will have to pay and the term of your loan. Meaning money in your pocket and not the banks.

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This article does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.