Moving to fortnightly mortgage payments - does it reduce interest and term length??

Elle4189

Has anyone change their monthly direct debit mortgage payment to fortnightly in an attempt to reduce interest paid and thus pay mortgage off quicker?

I can see the theory on how this would work, and have the information I need to do this, but I'm was just wondering if anyone had done this and seen a reduction in their interest payments and term length??

Thanks so much.

Hoenir

A lender won't take a direct debit fortnightly. 

Lots of people overpay their mortgages. As the balance reduces less interest is charged. Resulting in more monies reducing the capital owed. In doing so the mortgage is naturally repaid in full earlier. 

Takes significant overpayments to shorten a mortgage term considerably. Like rolling a snowball. Takes time to build up. 

TrickyDicky101

Elle4189 said:

Has anyone change their monthly direct debit mortgage payment to fortnightly in an attempt to reduce interest paid and thus pay mortgage off quicker?

I can see the theory on how this would work, and have the information I need to do this, but I'm was just wondering if anyone had done this and seen a reduction in their interest payments and term length??

Thanks so much.

If you are proposing to keep the total payment you make to the bank per month the same whether you pay in two bi-weekly payments or in one monthly one then you will save only a negligible amount of interest over the entire mortgage term.

If you propose, however, to make two payments each month of the same (or similar) size as the bank has told you to pay once per month then yes, you would save considerable amount on interest owed and also reduce the duration of the mortgage.

BikingBud

Elle4189 said:

Has anyone change their monthly direct debit mortgage payment to fortnightly in an attempt to reduce interest paid and thus pay mortgage off quicker?

I can see the theory on how this would work, and have the information I need to do this, but I'm was just wondering if anyone had done this and seen a reduction in their interest payments and term length??

Thanks so much.

Interest compounds on savings and debt, paying money in and managing debt down, reduce capital owed then total interest drops.

In effect mortgage payments are roughly like a stair case, debit interest is calculated daily and is only paid monthly. If you consider the micro, you will get a small increase in debt per day and then step down when the monthly payment is made.

By paying daily you will deduct interest on a daily basis and reduce the capital and take out this slight, imperceptible increase smoothing the curve to present a nice down slope. If you pay every 2 weeks you will be in a mid ground.

Big steps in overpayment will reduce interest paid significantly, smaller regular overpayments will reduce the interest paid by a lesser extent.

Increasing payment frequency alone would be excessive effort for minimal benefit.  

grumpy_codger

TrickyDicky101 said:

Elle4189 said:

Has anyone change their monthly direct debit mortgage payment to fortnightly in an attempt to reduce interest paid and thus pay mortgage off quicker?

I can see the theory on how this would work, and have the information I need to do this, but I'm was just wondering if anyone had done this and seen a reduction in their interest payments and term length??

Thanks so much.

If you are proposing to keep the total payment you make to the bank per month the same whether you pay in two bi-weekly payments or in one monthly one then you will save only a negligible amount of interest over the entire mortgage term.

I think the bit in bold needs clarification.
a) fortnightly = monthly*12/26
b) fortnightly = monthly/2

If it's (b) then effectively one will be overpaying by about one monthly payment per p.a., i.e. by 8.5%

MWT

The references to this on the internet mostly refer to the USA where a surprising number of people receive their wages every two weeks and in those cases then yes, it does make sense to pay the mortgage every two weeks as well, but over here it is not something most lenders are set up to handle and there is little to be gained as long as you have your mortgage payment set to leave your account shortly after you are paid each month...

Elle4189

Thanks everyone for your comments and advice. Very much appreciated