Should you make monthly, fortnightly or weekly mortgage repayments?

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. 

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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 

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: Does 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 nice dinner for two. 

You're still paying off the principal at the same rate of $21,623 per year, but 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, allowing weekly or fortnightly repayments is very common. 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? 

There are hundreds of home loan products on the market 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, we see that 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 much. 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. 

Article originally published by Dominic Beattie in April 2019. Last updated by Aaron Bell in March 2022. 

Image by marijana1 from Pixabay 

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