Strategy #1: Make Fortnightly Payments Instead of Monthly Payments
The first mortgage reduction strategy we’re going to look at is making fortnightly payments instead of monthly payments. By paying your mortgage every two weeks, you will end up making one extra payment each year.
How does this work?
Well, there are 52 weeks in a year. If you divide that by 12 (the number of months in a year), you get 4.33. This means that, on average, there are 4.33 weeks in each month.
Now, if you make monthly payments, you’re essentially paying 1/12 of your mortgage each month. But if you make fortnightly payments, you’re paying 1/24 of your mortgage every two weeks. Since there are 4.33 weeks in each month, this means that you’re effectively making one extra payment each year. This may not seem like much, but it can make a big difference over the life of your loan.
For example, let’s say you have a $300,000 mortgage with an interest rate of 3.5%. If you were to make monthly payments, you would pay off your mortgage in 30 years and you would end up paying a total of $443,739 in interest.
However, if you were to make fortnightly payments, you would pay off your mortgage in 29 years and you would end up paying a total of $415,636 in interest. That’s a saving of over $28,000!
Strategy #2: Refinance to a Shorter-Term Loan
The second mortgage reduction strategy we’re going to look at is refinancing to a shorter-term loan. This is a great option if you’re looking to pay off your mortgage sooner.
The way it works is simple: by refinancing to a shorter-term loan, you’ll have to make larger payments each month, but you’ll pay off your mortgage faster.
For example, let’s say you have a 30-year mortgage with an interest rate of 3.5%. If you were to refinance to a 20-year mortgage, your monthly payments would be higher, but you would pay off your mortgage in 20 years instead of 30.
Not only will you own your home 10 years earlier, you'll save a lot of money as well. In this example, you would save over $50,000 in interest by refinancing to a shorter-term loan.
Strategy #3: Make One Extra Mortgage Payment Each Year
The third and final mortgage reduction strategy we’re going to look at is making one extra lump-sum mortgage payment each year. This is a great way to pay off your mortgage sooner and save money on interest.
How does it work?
Well, let’s say you have a 30-year mortgage with an interest rate of 3.5%. If you were to make an extra payment of $12,000 each year, you would pay off your mortgage in 25 years instead of 30. Not only that, but you would also save over $68,000 in interest.
To Wrap Things Up
Those are three simple mortgage reduction strategies that can save you thousands of dollars. By making fortnightly payments, refinancing to a shorter-term loan, and making one extra mortgage payment each year, you can make a big difference in the amount of interest you pay and the length of time it takes to pay off your mortgage. If you’re looking for ways to reduce your mortgage payments, then give these strategies a try.
Published: Friday 27th January, 2023
Last updated: Monday 30th January, 2023
