It's almost too easy to be true. Instead of paying $2,000 a month in mortgage repayments, you can pay $1,000 a fortnight and save yourself a fortune on your home loan. It all comes down to some simple maths.
While there are 12 months in a year, there are 26 fortnights (two more than multiplying 12 by two), and 52 weeks. As such, fortnightly or weekly payments effectively see you make an extra month's worth of repayment each year without you even realising it.
To keep it simple, if you were making monthly repayments of $2,000, you'd be repaying $24,000 a year. But if you switched to fortnightly payments of $1,000 (half your monthly payment) or weekly payments of $500 (a quarter of your monthly repayment), you'd be repaying $26,000 a year. This is because, except for February, months are made up of more than 28 days and all those extra days effectively add up to extra repayments.
Check the Savings.com.au Mortgage Repayment Calculator to see the difference it could make to your home loan.
Bear in mind though this trick only works if the fortnightly repayment is exactly half the monthly repayment (or exactly a quarter if repaying weekly). Be aware, some lenders may calculate the fortnightly repayment figure by multiplying the monthly repayments figure by 12 (as opposed to 13) then dividing by 26. While fortnightly repayments calculated this way will be lower than if they were exactly half the monthly repayment, they won't help you pay off your loan too much earlier, so check with your lender when changing your repayment frequency and nominate the amount you'd like to pay.
Also, don't forget home loan debt accrues interest on a daily basis. This is important because it means the more frequently your debt is being 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 wages, making it easier for you to budget. So, if you're paid fortnightly, you might want the fortnightly mortgage repayment to be debited from your account the day after you get paid. This is a good way to stop you from overspending or not leaving enough in your account to meet the repayment when it falls due.
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 or use a redraw facility attached to your loan.
How much can more frequent repayments save you?
Let's consider a theoretical $500,000 loan at 6.5% p.a. interest taken out over 30 years. (For the purpose of the exercise, let's assume the interest rate won't change over that time.) The monthly repayment is $3,160 which can be halved to pay fortnightly ($1,580) and divided by four to pay weekly ($790). The table below compares the three repayment scenarios over the life of a 30-year loan.
|
Loan variables ($500,000 at 6.5%) |
Monthly |
Fortnightly |
Weekly |
|---|---|---|---|
|
Repayments |
$3,161 |
$1,580 |
$790 |
|
Interest payable over 30 years |
$637,228 |
$491,003 |
$490,385 |
|
Total loan cost |
$1,137,228 |
$991,003 |
$990,385 |
|
Time saved |
- |
5 years 10 months |
5 years 10 months |
|
Interest saved |
- |
$146,225 |
$146,843 |
Source: Mortgage Repayment Calculator
As you can see, paying off your loan fortnightly or weekly can save you more than $146,000 and cut your loan term down by almost six years over the life of a 30-year loan.
Weekly vs fortnightly home loan repayments: Does this make a difference?
But how much more could be saved by paying weekly rather than fortnightly? The truth is, not that much, although it still makes a small difference. Let's check the numbers.
|
Fortnightly |
Weekly |
|
|
Repayments per year |
$41,080 |
$41,080 |
|
Total repayments (principal + interest) |
$991,003 |
$990,385 |
|
Total Interest cost |
$491,003 |
$490,385 |
|
Total interest saved |
- |
$618 |
For our theoretical loan, repaying weekly instead of fortnightly would save you an extra $618 over the life of the loan, which could be enough to pay for a nice overnighter somewhere. You're still paying off the principal at the same rate of $41,080 per year, but since interest accrues daily, you end up making a saving which, when it comes to paying out a home loan, is better in your pocket than your lender's.
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. They can also be less flexible with fixed-rate loans. Again, check the terms and conditions of your particular loan to see what options are open to you.
How many lenders allow more frequent repayments?
While most lenders will have monthly repayments as a default option, allowing weekly or fortnightly repayments is very common. In fact, it's rare to find a variable home loan with P&I repayments that won't allow you to choose your own repayment schedule and if your lender doesn't it, then consider switching to one that does.
Competitive refinancing rates
If you're looking to refinance, the table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Row Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.79% p.a. | 5.83% p.a. | $2,931 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | |||||||||||
5.74% p.a. | 5.65% p.a. | $2,915 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | |||||||||||
5.84% p.a. | 6.08% p.a. | $2,947 | Principal & Interest | Variable | $250 | $250 | 60% |
| Promoted | Disclosure |
How to change your mortgage repayment frequency
Changing your home loan's repayment frequency depends on the lender, but many allow you to easily do this yourself via the internet. However, if your repayment is direct debited from an external account, you may need to call them and arrange it.
Don't forget to check with the lender how the fortnightly (or weekly) repayments will be calculated, because if the repayments are not half of your monthly repayment for fortnightly (or a quarter, if weekly), you won't get much benefit at all.
What about extra and lump sum repayments?
There are hundreds of home loan products on the market that also let you make extra or lump sum repayments. This is different to more frequent repayments, as it involves making additional repayments beyond the required minimum. This can include:
-
Extra repayments that let you make recurring payments on top of your regular payments, such as paying $200 a fortnight extra
-
Lump sum repayments that are one-off payments (although sometimes these may be capped at a certain amount each year)
Using our Extra and Lump Sum Repayment Calculator, paying an extra $200 per fortnight into that same loan (starting after three years) would potentially save you as much as $184,712 in interest overall and see you pay off the loan seven years and eight months faster. As you can see, any extra payments can mean considerable savings.
Savings.com.au's two cents
Repaying a home loan fortnightly or weekly results in an extra month's worth of repayments on your mortgage each year. This effectively helps you pay off a loan years earlier and can save tens of thousands in interest. Remember interest on mortgages accrues daily so repaying weekly will save you more in interest than repaying fortnightly, but not much over the life of a loan.
Synchronising your mortgage repayment frequency with how often you get paid can also be a great way to help you budget. If you get paid fortnightly, ask your lender if you can pay your mortgage every two weeks as well. Just be aware that you need to check how your lender calculates fortnightly repayments. You may want to ensure your fortnightly repayment amount is half of your monthly amount (and a quarter for weekly repayments) to enjoy the full cost-saving effect of more frequent payments. Paying fortnightly or weekly can be an almost painless way to save yourself a significant sum of money and be mortgage-free much sooner.
Original article by Dominic Beattie published April 2019. Last updated by Denise Raward on 22 May 2024.
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. 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. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
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