Is it better to pay monthly, fortnightly or weekly mortgage repayments?
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- Making your home loan repayments weekly or fortnightly instead of monthly can save you money
- More frequent payments can effectively see you pay less interest
- It can also see you pay off your home loan sooner
It's almost too easy to be true. Instead of paying $4,000 a month in mortgage repayments, you can pay $2,000 a fortnight and save yourself a small fortune on your home loan.
Making more frequent home loan repayments is a tried and tested hack that can reduce the overall interest you pay over the term of your loan. Let's see how it works.
Monthly/fortnightly/weekly defined
Before we start, here's a run-through of home loan repayment options:
- Monthly : This is typically the default option of most lenders and will see you make 12 home loan repayments a year.
- Fortnightly : This option will see you make 26 payments a year - one every two weeks. This is where the magic kicks in as this equates to around 13 monthly repayments a year (one more than you'd make with monthly repayments).
- Weekly : This sees you make 52 repayments a year - one a week. This option delivers much the same benefit as making fortnightly repayments and can be useful for those who prefer to budget weekly.
Comparing monthly/fortnightly weekly home loan repayments
Let's consider some cold, hard numbers in seeing how much you could save on the same loan just by varying the frequency of your payments.
The example below is for:
- a $700,000 home loan
- at 6.00% p.a.
- over 30 years
To keep it simple, the fortnightly repayment is half of the monthly repayment and the weekly is a quarter of it. Let's see how the numbers play out.
Monthly
(12 times a year)
Fortnightly
(26 times a year)
Weekly
(52 times a year)
Repayment amount $4,197 $2,098 $1,049 Total interest paid $810,862 $637,183 $636,413 Time saved on loan term 0 4.9 years 5 years Calculations via Savings.com.au's Mortgage Repayments Calculator.
How much can you save?
- Making fortnightly repayments will save you $173,679 over the life of the loan
- Making weekly repayments will save you $174,449 over the life of the loan
How fortnightly or weekly repayments work
Now let's take a look at some practicalities behind the maths.
- Interest on a home loan is generally calculated daily so the more frequent your payments, the faster you're reducing the principal which is what your interest is calculated on
- While there are 12 months in a year, there are 26 fortnights (two more than 12 X 2), meaning fortnightly repayments would see you make the equivalent of a whole extra monthly repayment per year
- There are also 52 weeks in a year, yet 52 divided by 4 does not make 12 neat months but 13 four-week periods, meaning weekly repayments also see you make a whole additional monthly repayment per year
Either way, fortnightly or weekly repayments can save you thousands of dollars in interest and take years off your loan term.
What the expert says
"The frequency of your mortgage repayments can make a real difference to how much interest you pay over time. The more frequently you make repayments, the faster you reduce your principal, which means less interest accrues on the loan.
"For many borrowers, fortnightly repayments are the sweet spot. They align well with most pay cycles, are easier to manage from a cashflow perspective, and because you make 26 repayments a year instead of 12, you effectively make an extra month’s repayment annually.”
"In a rising rate environment, this strategy becomes even more powerful because the savings on interest become more significant. Ultimately, the best structure is one that suits your financial situation, but if borrowers can comfortably manage it, more frequent repayments are one of the simplest ways to reduce interest and pay off a loan sooner.”
Pros and cons of more frequent home loan repayments
Pros
- They will save you money: As we've seen, we're talking serious amounts of money. That's hard to go past.
- They will take years off your home loan: You will be mortgage-free a whole lot sooner, allowing you to put your money towards other pursuits or investments.
- They can help with budgeting: If you get paid fortnightly, fortnightly repayments can easier to reconcile with your regular budgeting. If you're a weekly budgeter, weekly repayments may be more convenient.
- They can build equity faster: Because you're chipping away at your principal more frequently, it also helps you build up equity in your home at a greater pace. This not only reduces risks associated with your loan but can provide greater leverage should you choose to borrow against your home for other purposes down the track.
- They can provide a buffer should unforeseen financial circumstances arise: By paying more of your home loan off when you're able to, you create a cushion should you find yourself financially challenged down the track. Depending on your loan structure, you may be able to redraw the extra funds to get you through a tight spot or access them from an offset account if you have one.
Cons
- Your annual repayments will be higher: Because you are making the equivalent of 13 monthly repayments a year instead of 12, your annual repayments will be higher overall (but that's the point really).
- Reduces cash flow: Making an extra home loan repayment a year will effectively mean you have less cash to spend on other things. (This can be a good or bad thing.)
- Leaves you open to lender calculation anomalies: As discussed, you need to be on the front foot to ensure your lender is calculating your more frequent repayments so they serve the purpose you're aiming for. (More on this below.)
What to watch out for: A cautionary tale
It's vital to note this money-saving hack only works if the fortnightly repayment is exactly half the monthly repayment (or exactly a quarter if repaying weekly).
Be wary, some lenders may calculate the fortnightly repayment figure by multiplying the monthly repayments figure by 12 (as opposed to 13 ) then dividing by 26. (Those sneaky ... )
In effect, this means you won't be making an extra monthly repayment per year.
Yes, fortnightly repayments calculated this way will be lower than if they were exactly half the monthly repayment, but they won't help you pay off your loan too much earlier.
It's imperative to check with your lender when you're changing your repayment frequency and nominate the amount you want to pay.
Weekly vs fortnightly home loan repayments: What's the difference?
If you're tossing up between fortnightly and weekly repayments, the truth is there's not that much difference between them. Let's check the numbers based on our earlier home loan example.
Fortnightly | Weekly | |
Total repayment amount per year | $54,548 | $54,548 |
Total repayments (principal + interest) | $1,337,183 | $1,336,413 |
Total Interest cost | $637,183 | $636,413 |
Total interest saved | - | $770 |
On our theoretical loan, repaying weekly instead of fortnightly would save you $770 over the life of the loan which is better in your pocket than your lender's. (Who knows what that might get you in 30 years' time - hopefully, a loaf of bread and tin of beans.)
While you're still paying off the principal at the same rate of $54,548 per year, weekly repayments see you make more frequent dents into that principal amount that daily interest is calculated on - and that's where the difference lies.
Savings.com.au's two cents
Making more frequent repayments can be a relatively painless and highly effective way to save a hefty amount on your home loan.
You can choose to start making fortnightly or weekly payments from the outset, or when you're ready to start paying off more of your loan. Matching the frequency to your pay cycle can be a good way to embed the practice within your regular budgeting.
If you're aiming to save on interest (this may not be the case for all investors) and own your home sooner, fortnightly or weekly payments are a simple option - some would say a no brainer. Just make sure your lender has calculated the repayments to meet your goals, not their own.
Mortgage repayment frequency restrictions
So long as the total amount repaid over the month isn't less than the minimum monthly requirement, nearly all lenders are willing to let borrowers make fortnightly or weekly principal and interest (P&I) home loan repayments.
However, there may be some exceptions:
- If you have taken out an interest-only (IO) loan: In many cases, lenders only allow monthly repayments on interest-only loans
- When your loan is on a fixed rate : Fixed-rate loans are generally less flexible than variable-rate loans. There are typically restrictions on how much extra you can repay on your loan when it's in a fixed-rate period, generally an extra $10,000 annually although some lenders may allow up to an extra $30,000 a year. Even if you are permitted to vary your repayment frequency, you will have to be careful not to pay more than the extra repayment restriction as this can attract penalties or break costs.
Competitive refinancing rates
If you're looking switch to a loan type where you have more flexibility to pay down your loan, it's worth considering refinancing to a loan that better suits your needs. 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 | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
How to change your mortgage repayment frequency
Changing your home loan's repayment frequency depends on your lender, but many allow you to easily do this yourself via mobile banking or your lender's app. However, if your repayment is direct debited from an external account, you will likely need to call them to 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 see much benefit at all.
What about extra and lump sum repayments?
Many home loans also allow you to make extra or one-off payments on top of the minimum required every month. This is different to the more frequent payment strategy that's discussed here but while we're on the topic of saving money on your home loan, here are a few ways you can make extra repayments:
You can choose to make recurring payments on top of your regular payments, such as paying $200 a fortnight extra
You can choose to put one-off lump sum repayments into your home loan, e.g. a tax return, a win at the races, or an unexpected windfall. Be aware that on some home loans, particularly those on fixed rates, these extra payments may be capped at a certain amount each year
Our Extra and Lump Sum Repayment Calculator can help you see the benefits of paying extra on top of your minimum home loan repayment.
For other tips on paying down your home loan sooner, see also: How to pay off your mortgage quickly
Frequently Asked Questions
Fortnightly home loan repayments are not automatically better for everyone. It depends on what your goals are for your home loan.
If you're aiming to save on interest and pay down your loan sooner, making fortnightly repayments is an effective way to do this. But only if your lender calculates your fortnightly repayment as being half of your monthly repayment.
Saving money on interest and paying your loan down sooner may not suit some property investment tax strategies so may not be 'better' for all borrowers.
For most home loans where borrowers are making principal and interest repayments, you can choose how frequently you wish to make your mortgage repayments.
This choice doesn't necessarily have to be tied to your pay cycle. It can be a matter of nominating when you'd like your repayments to come out of your relevant account. This can either be done online or by contacting your lender directly.
You'll just need to make sure the amount you set aside from your monthly pay will accommodate your weekly repayments.
Repayment flexibility is a common feature of nearly all principal and interest (P&I) home loans.
However, some lenders may restrict repayments to monthly only for interest-only or fixed-rate home loans. It's important to check individual lenders' policies.
If you wish to take advantage of the benefits of more frequent repayments and can't with your current home loan, it's worth speaking to your lender about restructuring or refinancing your loan, or look to refinance with another lender that will allow greater flexibility to suit your goals.
This can be as simple as logging into your mobile banking or lender's app and locating your loan account. There may be an option to 'manage repayments' or 'modify payment' offering the choice of weekly, fortnightly, or monthly repayments. Select which option is best for you.
If you are not confident conducting your banking digitally - or your bank doesn't offer the option online - you can contact your lender and update how frequently you wish to make your repayments. This can also be the best way to change your repayment frequency if your payments are coming from an external account.