Fortnightly Repayments
Unfortunately within the market there is a misled perception that fortnightly repayments can reduce your loan quicker than a monthly repayments. (Technically, there is a very minor offset benefit to fortnightly repayments, which may reduce a 30-year loan term by 1 or 2 months, but this is not the perception I am referring too).

Similar to many debt reduction activities in the industry, fortnightly repayments builds a perception that one product may be better than another, and is used to help justify the switching of lenders or products. The truth is this, it is the additional repayment amount, not the repayment frequency, which reduces the loan term and provides interest savings potential. Lets review the following scenario…

Monthly repayments
If you are repaying $2,000 per month, you annual contribution to the loan would be $24,000 per annum ($2,000 x 12 months).

Fortnightly repayments as often promoted in the market.
A lender will promote instead of paying $2,000 per month, if you change that to our fortnightly repayment of $1,000, you will save interest and loan term. This is correct, but the reason is because you are now paying $26,000 per annum ($1,000 x 26 fortnights), instead of $24,000 (as per monthly above).

It is the additional loan contribution of $2,000 per annum that reduces the loan term and makes a savings, not the fact you are paying fortnightly. If in theory you increase you monthly repayments to equal $26,000 per annum ($2,166.67 x 12 months), the end result would be the same. Changing you loan or repayment frequency is not the reason for reducing the debt.

The real issue with fortnightly repayments is the confusion it creates. I have even seen so called industry experts get this wrong, thinking that if you take your current monthly repayment times this by 12 and then divide by 26 to establish a fortnightly repayment, then you mortgage will magically reduce by many years. This is simply false and with no measurability on the strategy, it can easily go undetected. If this is confusing some experts, then what chance does the average person have? Many people have been caught out with unnecessary refinancing or believing they are doing better than they actually are.

Lines of Credit
Lines of credit are the same as any flexible interest only loan, but with one major difference. Your available limit does not decrease over time, and there are no requirements to reduce the debt until the end of the loan term. Lines of credit were promoted for many years as the debt reduction miracle many consumers had been waiting for. These people placed their trust into this premium form of finance, and unfortunately most of them experienced first hand how lack of financial control and measurability can cost you.

The line of credit calculated the loan balance based on your spending. If you spend only this much, then what is left reduces the loan amount, and the results looked fantastic. But there are two fundamental issues were this.

Firstly to reduce the debt the way the strategy was set up, meant establishing complete control of your expenses. With day-to-day access to your entire loan limit, often through an attached credit card, financial control is completely undermined. Secondly there is no measurability on the targeted reduction, so you could not see yourself going off track.