Everyone’s heard the hype about making your mortgage repayments bi-weekly, or fortnightly, and how it can slash years off your loan term and save you thousands of dollars.

There are some debt reduction companies who are willing to charge you massive fees to teach you how the bi-weekly debt reduction system works if you don’t want to do it on your own.

Or you can learn a little about how it works for yourself and save yourself some fees once you realize how easy it is.

Why Pay Bi-Weekly Payments?

When the bank sets up your mortgage for the first time, they amortize your repayments. This means they have already factored into every one of your repayments and amount for their interest payments and profit amounts plus a tiny amount that comes off your balance. This is what they call ‘principle and interest’ payments and it means that for every payment you make, only a little is coming off how much you owe.

Most people pay the minimum amount written on their statements each month and then they wonder why they’re not getting ahead or they wonder why it takes so long to reduce any debtsd. Banks love this way of thinking because they make the most profit from their customers when this happens.

By making more frequent repayments you not only reduce your balance more quickly, but you also reduce the amount of interest the bank is able to charge you.

Getting Started with Bi-Weekly Payments

Before you change any of your payments, you need to know how much you’ll be paying each fortnight. Start by dividing your monthly repayment by 2. It’s not rocket science. Just look at your monthly payment and divide it by 2.

This new amount will be half your normal monthly payment and it will become your new bi-weekly repayment.

Don’t try to use any other calculations and don’t allow your bank’s customer service people to calculate it for you. Work out your own monthly repayment and divide it by 2. Insist the bank’s customer service people use your figure - not theirs. This is important.

Setting Up Your Bi-Weekly Payments

You will need to call your bank or lender and work out your payment changes. They will need to alter their computer systems

You will need to arrange for your payment structure changes with your bank. They need to know that your payments are now being made bi-weekly so they can adjust their systems.

The bank staff might make suggestions about doing “real” bi-weekly payments, which are even cheaper than the figure you worked out from the step above. If this happens, use your own bi-weekly figure that you worked out in a previous step and don’t be swayed.

Tip: When you call your bank keep it firmly in mind that bank’s staff are all well trained to make the bank a profit. It’s their job. They get paid when the bank makes a profit. Remember this rule and stay firm with your own focus.

Why Bi-Weekly Payments Work

When you pay your loan monthly, you will make 12 payments each year.

When you pay bi-weekly you will pay 26 payments per year - which is more than just double your monthly payments. It’s actually 13 monthly payments.

This means if you continue to pay your mortgage payments bi-weekly you will be one monthly payment ahead each year. No wonder the banks didn’t want you to know about it.

It’s so simple but this method really can cut several years off the end of your loan term and save you thousands of dollars in interest charges.

Try entering your own numbers into any good online mortgage calculator and check what savings you could be making by paying your mortgage bi-weekly.