How Do I pay Off My Loan Faster?

Below we discuss some of the most effective methods for paying off your debt sooner and saving thousands of dollars. These techniques save you the most money when applied to mortgages (because mortgages involve larger sums and longer periods of time) however, they can also relate to other debts such as car loans. 

Why Make Bi-weekly Rather Than Monthly Payments?
This is the simplest way to pay your mortgage sooner. Making biweekly mortgage payments rather than monthly payments will reduce the time it takes to pay off your mortgage by several years.

Here is how it works. Let’s say Jan and Tomobtain a mortgage that has monthly payments of $1,000. Instead of paying $1,000 per month, Jan and Tom could alter their mortgage paymentsand make two payments of $500 every two weeks rather than $1,000 per month. There is no issue with the bank as they still get paid the $1,000 minimum every month, and as far as Jan and Tom are concerned, paying $500 every two weeks is almost the same as paying $1,000 per month. Even though this doesn’t feel any different to Jan and Tom, it will shave 5 years and 2 months off of their mortgage and save them over $37,667 over the life of their mortgage (assuming that their interest rate stays the same, and they do not redraw any of those extra repayments).

Here is how Jan and Tom will save so much money.  If they made monthly payments, their bank would debit their account for $1,000 twelve times a year (12 months x $1,000 monthly payments = $12,000 in annual mortgage payments). When they halve their monthly payment and get their bank to pull $500 out of their account every two weeks, they end up making what amounts to one extra monthly payment each year (26 biweekly payments x $500 every two weeks = $13,000 in annual mortgage payments). Most people would never guess that making one extra mortgage payment each year could save them so much money.

As interest is charged daily by most banks an additional saving is achieved by making two payments per calendar month, reducing the principal balance (the sum that the interest payable is calculated on) for a minimum of 14 days each month. When people find out how much money they can save and how many years they can shave off their mortgage, most end up choosing this option. You can even take this method once step further and pay weekly, but it doesn't give you the big savings that biweekly do over monthly payments. Essentially it is just as good, so go with whatever you pay cycle or budget works with, weekly or fortnightly.

What Are Accelerated Mortgage Payments?