When it comes to choosing the right mortgage, how can you know you’re getting the best deal available to you?

No matter what advertising hype you’ve seen and no matter what ha worked well for your friends or family, there is no such thing as the best mortgage. There is only the right mortgage for you.

The reason is that no one else has the same financial situation as yours. Your income and your expenses are unique to you. Your spending habits and your repayments are also not the same as anyone else’s, so why would you do the same things they’re doing?

After all, the really low interest rate you saw advertised or heard about from a friend might sound ideal, but you might not qualify for it. Or you might discover that even though the rate is really low, they might have hidden fees and charges that make your costs even higher than going for other options.

How Do You Find the Right Mortgage?

The key to finding the right mortgage to suit your unique financial circumstances is to look carefully at your current income and your current expenses. Then consider what your future plans are going to be.

If you know you’re going to sell the house and move in a couple of years, then always double check what the exit fees will be on the mortgage you choose.

If your credit score is a little low right now, then perhaps shop around and compare the difference between paying more for interest rates and less for a house now. Then look at how much those numbers change when you take 6 months to increase your credit score. You might get a lower interest rate then, but will you be paying more for the house you want?

If you know you’re going to borrow using two incomes to meet mortgage servicing levels, but you know you want to start a family soon, then consider using only one income to work out your borrowings. This way you won’t struggle later.

Some people are attracted to the really low introductory rates the banks advertise. If your income only just covers these introductory rates, have you considered how you’ll afford the repayments once they adjust over to regular rates? If you’re unable to refinance in the future then you could face a lot of stress and trouble when this happens.

Who’s Selling You Your Mortgage?

When it comes to finding the right mortgage, most people simply go to their local bank branch or they call a mortgage broker. Your bank can only offer you the lending products they have available. They can’t offer you the great deal you saw across town from another bank.

Mortgage brokers are licensed to sell financial products from a wide range of banks. This does give you a lot more choice, which increases your chances of finding the right mortgage. Always remember that mortgage brokers are paid for selling you a lending product, regardless of which one you get.

It’s important to check that you’re really getting the right mortgage for you. The best way to do this is to ask plenty of questions. Be prepared with a list of things you want to know and be sure you get the answers you want.

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.

It’s a proven fact that making biweekly mortgage payments can reduce your mortgage balance faster and reduce the loan period quickly too.

Did you know there are ways your bank can stop your biweekly payments from working for you? You could be diligently paying your mortgage every fortnight, or on the same day every 14 days, yet you’re not getting any further ahead.

This is because banks teach their staff a special language known as ‘Bankese’. This language translates the same way every time. It simply means ‘making more profit for the bank and less profit for you’.

Your real biweekly payments should always be HALF your monthly repayment. To make them work for you, pay them on the same day every 14 days. If your minimum balance is $1,000, then divide this by two and start paying $500 every 14 days. That’s it. It’s not rocket science.

Let’s look at some of the traps your bank can set for your biweekly mortgage payment plans.

Turning Biweekly into Twice-Monthly Payments

You might find that if you ask your bank to change your repayment times to biweekly instead of monthly, they automatically deduct your payments on the 1st and on the 15th of each month and no other time.

Paying your biweekly payments twice a month has no extra effect on paying off your mortgage quickly. You’re paying the same amount of money, so it’s not reducing your balance any faster. You’re also not reducing the loan term at all.

You must be firm about making your bank accept your repayments on a fortnightly basis, not twice a month. The point of paying biweekly is to pay every 14 days. By the end of the year, this method will put you exactly one full monthly payment ahead on your mortgage.

When Biweekly Payments Aren’t Really Biweekly Payments

Some banks are sneaky about calculating your new fortnightly payments their way instead of your way. You both know what your minimum monthly repayment is supposed to be. Grab a calculator and divide this payment amount by two.

When you know how much half your monthly payment is, this is the real biweekly repayment you want to make.

Unfortunately, your banker might think he or she is helping by telling you that there are not 2 fortnights in each month, so they’ll divide it differently for you to save you some money.

This is where they’ll give the following calculation for you:

Let’s say your minimum payment is $1,000. They’ll tell you that annually this adds up to $12,000. There are 26 fortnights in a year, so your real biweekly payments should look like this:

$12,000 divided by 26 = $461.53

If you started paying their version of biweekly payments, then you might find that most months in the year have two fortnights – not three. By paying the bank’s version of your biweekly payments, you’ll pay $461.53 twice. This adds up to $923.06

You’ll remember that we’re working on an assumed example of $1,000 per month as a minimum payment. You would only have paid $923.06 – which means your mortgage is in arrears.

Suddenly your bank is able to charge you default interest rates and penalty fees for not making your minimum monthly payment.

No matter how helpful you feel your bank is being, always do your own calculations. Always insist that your biweekly mortgage payments are happening on the same day every 14 days and then insist that the payments be worked out your way – not the bank’s way.

This is your financial future we’re talking about here, so stand firm, take control and you’ll reap the benefits.

It’s possible to learn a bit about the different mortgage types so you’re in a position to use that information to beat the banks at their own game. Once you understand how different mortgage types can affect you and your financial goals, you can then begin to repay your mortgage faster.

You see, banks really don’t like mortgage reduction plans. They like their customers to stay in debt and make their repayments on time for as long as possible. This is how they make their profits.

It’s also why some banks offer lending products that are specifically restricted and inflexible. Banks really like mortgage and other lending products with very little flexibility because they know you’ll stay in debt longer. They purposely make it difficult for clients to adjust repayments or make it expensive to repay your loan too early.

Adjustable Rate Mortgage (Variable Rate)

Most people understand that an Adjustable Rate Mortgage is charged at a variable interest rate. Your repayments go up or down in line with any interest rate movements on the money market.

Fixed Rate Mortgage

A fixed rate mortgage allows you to lock in your interest rate at a specified rate that remains the same for a fixed term. Fixed rates can be ideal for anyone on a difficult budget, or if they know the rates are likely to increase in the coming years. They’re also great for investors who need to maintain steady investment costs.

Principal and Interest Mortgage

The vast majority of mortgages are charged using a repayment calculation method called ‘amortization’. This is where the bank can calculate exactly how much interest they want to charge you in advance over the entire loan term and then they can determine how much of your monthly payment will be in the interest portion and how much will pay off the principal.

Understanding that each payment you make is made up of both principal and interest payments means that you can try to find ways to reduce your mortgage balance so you’re paying less interest and more principal whenever possible.

Interest Only Mortgage

Some banks allow investors to repay only the interest portion of their mortgage and not repay the balance owing. Many property investors elect to use these mortgages, choosing to either bank on capital gain in the property or to keep the profit generated by the rent.

Equity Loans

An equity loan is a revolving line of credit that is a little like a giant credit card. Theoretically, a line of credit could be used as an amazingly powerful debt reduction tool. Unfortunately, 95% of people who have equity loans are never given enough information to use these loans effectively and so they end up in worse trouble than they imagined.

Equity loans are charged at an interest only rate on the balance owing each month. You’re not asked to repay the principal unless you want to. This makes it very tempting for people to pay only the minimum and redraw any available equity they may have, which keeps them in debt for longer rather than paying off debt.

Unless you’re extremely disciplined with your money and able to create and maintain a very accurate budget each month, then avoid using a line of credit.

You might have already heard that biweekly payments can seriously help you to pay off your mortgage faster, but do you understand how they work? You could pay a company huge fees to show you, or you could take a moment to see how they work for yourself.

After all, it’s your money so learning to take control of it yourself will be the best thing you ever did for yourself. You’ll find that it’s easier to budget each week and you’ll notice your mortgage balance reducing faster than you thought by simply doing one small thing a bit differently.

How Biweekly Payments Are Calculated

Grab your mortgage statement and check how much your minimum payment is each month. This is the ‘amortized’ payment, which was calculated by the bank to pay back a bit of your balance and a lot of their interest.

This figure is also the minimum possible payment you need to make in order to make your mortgage stretch out for the longest possible period of time. If you pay only the minimum amount once a month, then you will pay out your mortgage balance only at the very end of the full loan term.

Let’s cut down some of the bank’s profits and re-calculate this payment so it’s in your favor instead of theirs.

Here’s an example of a biweekly mortgage payment calculation:

If your mortgage payment was $1,000 per month, then by the end of the year you’ll pay exactly 12 payments over that time. This adds up to $12,000. Simple, right?

No matter what your mortgage payment is, divide it by 2. If your monthly payment is $1,000, then you’ll divide this by two and end up with a biweekly figure of $500. This means you’re going to pay half your mortgage payment every second week on the same day.

What is Biweekly?

Biweekly simply means ‘every 14 days’ and is the same period of time as fortnightly. It does NOT mean twice a month. It means that if you get paid every second Thursday, then you make your newly calculated payment on every second Thursday.

This is an important distinction to make.

How Do Biweekly Payments Reduce Your Mortgage?

If you only make your new biweekly mortgage payment twice a month, then by the end of the year you would have made 24 half-payments, which is exactly the same as 12 monthly payments. You’re having no effect on paying off your mortgage at all.

However, if you pay your new biweekly mortgage payment on the same day every second week, then by the end of the year you would have made 26 payments instead of 24.

This puts you one entire payment ahead every year.

What Else Can Biweekly Mortgage Payments Do For You?

On top of being ahead on your mortgage all the time, you’re also able to reduce the amount of interest you’re being charged on your loan. When banks calculate your interest charges, they work out how much interest you owe them based on your mortgage’s balance at midnight EVERY day.

Then they add up what they’ve charged you and show you one simple figure at the end of the month.

By paying biweekly, your balance actually drops by that little bit of money every 14 days. This reduces the balance, which in turn reduces the amount of interest the bank can charge you at the end of the month.