Should you make monthly, fortnightly or weekly mortgage repayments?

author-avatar By on April 01, 2021
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.

Using Savings.com.au's Home Loan Repayment Frequency Calculator, let's take a look at how more frequent repayments on your mortgage can save you both money and time. 


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

Base criteria of: a $400,000 loan amount, variable, fixed, 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.

How fortnightly or weekly repayments work

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 example, 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.

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 instead of being charged interest on $300,000 over the whole month.

Flexible repayments can make budgeting easier 

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.

How much can more frequent repayments save you? 

Let's say you're looking at taking out a $450,000 home loan for 30 years at an interest rate of 2.50% p.a. You're unsure whether to pay monthly or fortnightly and decide to calculate how much you 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. Note these examples assume your interest rate never changes, when it most likely will over 30 years. 

Paying fortnightly vs monthly: Entire loan term interest savings 

  Monthly Fortnightly
Repayments per year $19,959 $21,623
Total repayments (principal + interest) $598,783 $582,140
Total Interest cost $148,783 132,141
Total interest saved N/A $16,643
Time to pay off loan 30 years  26 years, 11 months
Time saved N/A 3 years, 1 month

Source: Repayment Frequency Calculator

In this example, deciding to pay off your mortgage fortnightly would help pay off your loan three years and one month earlier compared to paying monthly, but importantly it would also save you more than $16,000 in total interest costs. 

Weekly vs fortnightly home loan repayments: Do this make a difference? 

But how much more could be saved by paying weekly rather than fortnightly? The truth is, not much, but it can still make a small difference. 

In this example, repaying weekly instead of fortnightly would save you an extra $111 (approximately) over the life of the loan, which could be enough to pay for a dinner at a classy restaurant or a few tank's worth of petrol. 

  Fortnightly  Weekly
Repayments per year $21,623 $21,623
Total repayments (principal + interest) $582,141 $582,029
Total Interest cost $132,141 $132,029
Total interest saved N/A $111

Although you're still paying off the principal at the same rate of $21,623 per year, since interest accrues daily you end up making 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 usually only allow monthly repayments, while they can also be less flexible with fixed-rate loans.

How many lenders allow more frequent repayments? 

While most lenders will have monthly repayments by default, this is a very common feature and most of them have it these days. It's rare to find a variable home loan with P&I repayments that won't allow you to choose your repayment schedule, and if your lender doesn't then consider switching to one that does

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 them and ask. 

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.

What about extra and lump sum repayments? 

According to Savings.com.au's research there are almost 400 home loan products on the market at the time of writing that also let you make extra or lump sum repayments. These are different to more frequent repayments, as they involve making additional repayments beyond the required minimum:

  • Extra repayments let you make recurring payments on top of your regular payments, such as paying $200 a fortnight extra 
  • Lump sum repayments are a one-off payment, and are sometimes capped at a certain amount each year 

Using the Savings.com.au Extra and Lump Sum Repayment Calculator, by paying an extra $200 per fortnight into that same loan from before (starting after three years), you'd potentially save as much as $43,000 in interest overall, and pay off the loan almost seven years faster. Making a one-off contribution of $10,000 meanwhile could save about $9,500 and almost one year. 

Savings.com.au’s two cents

Repaying a home loan fortnightly or weekly can result 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 on mortgages tends to accrue daily, so repaying weekly will save you more interest than repaying fortnightly, but not by much. But both generally tend to be better than paying monthly.

Synchronising your mortgage repayment frequency with how often you get paid is a great way to help you to budget. If you get paid fortnightly, then ask your lender if you can pay your mortgage every two weeks on that day. 


Image by marijana1 from Pixabay 

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): Great Southern Bank, 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.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

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.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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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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