Hello, I’m Graham Turnbull, your expert financial strategist and mortgage broker at GT Financial Services. One question we often get from clients is how they can pay off their mortgage faster. One effective strategy is switching from monthly to weekly or fortnightly payments. Let’s explore how this works and why it can make a significant difference. We’ll also look at the benefits of making extra repayments to help you achieve your goal of being mortgage-free sooner.
Understanding the Basics
Most homeowners make their mortgage payments monthly. However, by changing the frequency of your payments to weekly or fortnightly, you can save on interest and shorten the term of your loan.
The Mechanics
Here’s how it works:
- Weekly Payments: If you switch to weekly payments, you divide your monthly mortgage payment by four. Since there are 52 weeks in a year, you end up making 52 weekly payments, which is equivalent to making 13 monthly payments (4 x 13 = 52). This means you effectively make an extra monthly payment each year.
- Fortnightly Payments: Similarly, if you switch to fortnightly payments, you divide your monthly mortgage payment by two. There are 26 fortnights in a year, so you end up making 26 payments, which again equates to 13 monthly payments (2 x 13 = 26). Like weekly payments, this results in an extra monthly payment each year.
The Impact
This additional monthly payment each year significantly reduces your loan’s principal balance faster. As a result, you pay less interest over the life of the loan and can potentially shorten your mortgage term by several years.
How Extra Repayments Work
In addition to switching to weekly or fortnightly payments, making extra repayments whenever possible is another powerful strategy to pay off your mortgage faster. Extra repayments directly reduce your loan’s principal amount, which decreases the total interest you pay and accelerates the payoff period.
Practical Tips
- Regular Extra Payments: Set a goal to make extra repayments regularly, such as monthly or quarterly. Even small amounts can make a big difference over time.
- Lump-Sum Payments: If you receive a bonus, tax refund, or any other windfall, consider using it to make a lump-sum payment on your mortgage. This can dramatically reduce your principal balance and, consequently, the interest charged.
Benefits
- Reduced Interest: Every extra dollar you pay towards your mortgage reduces the principal amount on which interest is calculated. This means more of your regular payments go towards reducing the principal rather than paying interest.
- Shorter Loan Term: By paying down the principal faster, you can significantly shorten the length of your mortgage, freeing you from debt sooner.
Take the Next Step
If you’re looking to pay off your mortgage faster, consider switching to weekly or fortnightly payments and making extra repayments whenever possible. These simple changes can make a huge difference in your financial future.
At GT Financial Services, we’re here to help you understand your unique situation and explore the best strategies to achieve your goals. Contact us today to discuss how we can assist you in paying off your home loan faster and becoming debt-free sooner.
