Should you make monthly, fortnightly or weekly mortgage repayments?

author-avatar By on September 10, 2018
Should you make monthly, fortnightly or weekly mortgage repayments?

Repaying fortnightly or weekly can help you pay off your mortgage years earlier and save tens of thousands in interest.

How fortnightly or weekly repayments can save you

Since there are 12 months in a year, but 26 fortnights and 52 weeks, fortnightly or weekly payments can help you make an extra month’s worth of monthly repayments each year without you even realising it. For instance, if you were making monthly repayments of $1,000, you’d be repaying $12,000 a year.

But if you switched to fortnightly payments of $500 (half your monthly payment) or weekly payments of $250 (a quarter of your monthly repayment), you’d be repaying $13,000 a year. This is because different months have either 28 (29 in a leap year), 30 or 31 days, while weeks always have seven days.

But this trick only works if the fortnightly repayment is exactly half the monthly repayment (or exactly a quarter if repaying weekly). Some lenders calculate the fortnightly repayment figure by multiplying the monthly repayments figure by 12 then dividing by 26.

While fortnightly repayments calculated this way will be lower than if they were exactly half the monthly repayment, they don’t help you pay off your loan earlier – so check with your lender about this when changing your repayment frequency.

Also, home loan debt accrues interest on a daily basis. This is important because it means that the more frequently the debt is repaid, the lower the cost of interest. For instance, if in one month you made two fortnightly payments of $1,000 instead of one monthly payment of $2,000 on a $300,000 balance, you’d be accruing interest on $300,000 for one half of the month and $299,000 for the other half of the month – as opposed to being charged interest on $300,000 over the whole month.

Low rate variable home loans

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.

Fortnightly or weekly repayments can also allow you to synchronise your costs with your fortnightly or weekly income, making it easier for you to budget. So, if you’re paid fortnightly, you might want the fortnightly mortgage repayment to be direct-debited from your account the day after you get paid to prevent you from overspending and not leaving enough in the account to meet the repayment.

Don’t forget, no matter your repayment frequency, you can always make extra repayments, or save on interest by parking spare cash in an offset account.

Case Study: Louise and Jim consider paying fortnightly instead of monthly 

Louise and Jim are looking at taking out a $450,000 home loan for 30 years at an interest rate of 4.42% p.a. They are unsure whether to pay monthly or fortnightly and decided to calculate how much they could save by paying fortnightly.

Assuming the fortnightly principal and interest repayments are exactly half the monthly repayments, here’s how to calculate fortnightly mortgage repayments.

Paying fortnightly: 5-year saving on Interest Paid

  Fortnightly Monthly
Repayments per year $1,129 x 26 = $29,354 $2,258 x 12 = $27,096
5-year total repayments (principal & interest) $146,770 $135,480
Total interest saved over 5 years $1,378 n/a

Paying fortnightly: 10-year saving on Interest Paid

  Fortnightly Monthly
Repayments per year $1,129 x 26 = $29,354 $2,258 x 12 = $27,096
10-year total repayments (principal & interest) $293,540 $270,960
Total interest saved over 10 years $5,898 n/a

Paying fortnightly: Entire loan term

  Fortnightly Monthly
Repayments per year $1,129 x 26 = $29,354 $2,258 x 12 = $27,096
Total repayments (principal + interest) $752,164 $813,148
Total Interest cost $302,164 $363,148
Total interest saved $60,984 n/a
Time to pay off loan 25.62 years 30 years
Time saved 4.38 years n/a

Source: Mortgage calculator

Louise and Jim decide to pay off their mortgage fortnightly to save on interest and help them pay off their loan four years and 139 days earlier.

Weekly vs Fortnightly Home Loan Repayments

But how much more could be saved by paying weekly over fortnightly? The truth is, not much.

In Louise and Jim’s case, repaying weekly instead of fortnightly would only save them $319 over the life of the loan – enough to buy them dinner and bottle of wine at a fancy restaurant.

  Fortnightly Weekly
Repayments per year $1,129 x 26 = $29,354 $564.50 x 52 = $29,354
Total repayments (principal + interest) $752,164 $751,845
Total Interest cost $302,164 $301,845
Total interest saved n/a $319

By paying weekly instead of fortnightly, Louise and Jim are still paying off the principal at the same rate of $29,354 per year, but since interest accrues daily, they make a slight saving.

Mortgage repayment frequency restrictions

So long as the total amount repaid over the month isn’t less than the minimum monthly requirement, most lenders are generally willing to let borrowers make fortnightly or weekly principal and interest (P&I) repayments. However, for interest-only (IO) loans, lenders don’t normally allow weekly or fortnightly repayments – usually only monthly repayments are required. Lenders can also be less flexible with fixed-rate loans.

How to change your mortgage repayment frequency

The method of changing your home loan’s repayment frequency depends on the lender, but many allow you to do this yourself through internet banking. If your repayment is direct debited from an external account, you may need to call the lender.

Don’t forget to check with the lender how the fortnightly (or weekly) repayments are calculated, because if the repayments are not exactly half (or a quarter, if weekly) the monthly repayment – you won’t pay off the loan earlier and save as much.

Savings.com.au’s two cents

  • Repaying a home loan fortnightly (half your monthly repayment) or weekly (a quarter of your monthly repayment) results in an extra month’s worth of repayments on your mortgage each year, which helps you pay off the loan years earlier and save thousands in interest.
  • Interest accrues daily, so repaying weekly will save you more interest than repaying fortnightly, but not by much.
  • Synchronising your mortgage repayment frequency with how often you get paid is a great way to help you to budget.

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
Dominic Beattie is the Editor of Savings.com.au. He has been publishing articles on finance, business and economics since 2015, having previously worked as a Senior Journalist at financial research firm Canstar before helping to launch Savings.com.au in November 2018. Dominic aspires to help everyday Australians discover simple and effective ways to comfortably manage their finances and save money, without sacrificing their joie de vivre. His commentary has featured on various news outlets, including: Channel 7 News, News.com.au, Domain, Realestate.com.au, Daily Mail, Radio 2NURFM and DrWealth.

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