Does paying your mortgage weekly or fortnightly save you money?
Paying your mortgage weekly or fortnightly instead of monthly could reduce the total interest you pay over the life of the loan. Even though monthly repayments are the most common choice, it also results in the highest total interest repayments over time.
Most borrowers don’t realise that the frequency of your regular repayments can make a big difference to how much you pay in interest. Whether you’re looking for a new home loan or reviewing your current one, it’s best to consider how often you’re making repayments.
How does paying your mortgage fortnightly save money?
By making fortnightly payments on your mortgage, you end up paying an additional month per year. This means that paying fortnightly can substantially reduce the number of years it takes to pay off your home loan.
Since there are 26 fortnights in a year, you would be paying off more of your loan every year compared to a monthly payment. This could significantly reduce your loan term as well and help you own your home sooner.
Paying monthly vs fortnightly
Imagine you take out a $500,000 loan for 30 years at an interest rate of 6.04%. Your monthly payments will be $3,010.62. In a year, you’ll pay $36,127.44. Over the duration of the loan, the total amount you repay will be $1,083,826 including both principal and interest.
If you take the same loan and switch from monthly to fortnightly repayments, you’ll be paying $1,505.31 every fortnight which is a total payment of $39,138.06 in a year. With a fortnightly repayment scheme, you’re paying an extra $3,010.62 each year.
Paying fortnightly will also cut the time it takes to repay the loan while helping you save on interest. By paying fortnightly, your home loan will cost a total of $958,035 which gives you $125,791 in savings when compared to monthly payments.
Paying weekly vs fortnightly
Paying your mortgage weekly is also an option for borrowers. The savings from a weekly repayment compared to a fortnightly repayment may not be as big compared to a monthly one, but it’s still worth considering.
For example, if you have a $500,000 loan with an interest rate of 6.04% and a 30-year loan term, you’re looking at an estimated $752.66 weekly repayment amount. That’s a total loan cost of $957,479. You’ll also reduce the time spent paying off the loan which could be a great benefit to some borrowers.
Weekly payments pay down your mortgage the fastest of the three options. But compared to paying fortnightly, you’ll be saving an additional $556 on interest charges.
Monthly vs fortnightly vs weekly mortgage repayments:
| $500,000 loan with 6.04% interest rate | Monthly | Fortnightly | Weekly |
|---|---|---|---|
| Repayment amount | $3,010.62 | $1,505.31 | $752.66 |
| Interest payable over a 30-year loan term | $583,826 | $458,035 | $457,479 |
| Total loan cost | $1,083,826 | $958,035 | $957,479 |
| Time saved repaying the loan | n/a | 4 years | 4 years |
| Interest saved | n/a | $125,791 | $126,347 |
How does interest accrue?
Interest on loans.com.au’s home loans is calculated daily and then charged to you at the end of each repayment month. We take the outstanding loan amount at the end of each business day and multiply it by the interest rate that applies to your loan. Then we divide that amount by 365 days (or 366 in a leap year) and multiply the daily amount by the payment period.
The interest rate affects the amount you will be required to repay over the life of your home loan. If you have a variable-rate home loan, when interest rates rise it will increase your mortgage repayments.
In contrast, if interest rates fall your repayments will be lower. If you choose a fixed-rate loan, you do not have to worry about changes in interest rates until the fixed period is over.
How can you set up more frequent payments?
You choose your repayment frequency during the loan application process. However, if your mortgage has been set up with monthly repayments but you would like to change it, it’s best to discuss it with your lender.
At loans.com.au we know that your circumstances may change throughout the duration of your home loan. When this happens, you can chat with us to set up more frequent payments, add lump sum payments or even discuss getting an offset sub-account.
Are there other ways to save on interest and pay off a mortgage quickly?
Yes, there are a couple of ways to pay off your home loan quicker and save on interest charges without completely changing the repayment frequency. At loans.com.au, we provide borrowers with a few options:
Make additional repayments
Additional repayments into a variable home loan are allowed on an unlimited basis, and into a fixed home loan are allowed up to $10,000 per annum. You don’t have to worry about paying additional repayment fees as long as they’re within the allowed amount. There is no redraw or offset sub-account available unless there is a variable split.
Offset sub-accounts
The amount in your offset sub-account is offset against your loan balance and interest is only charged on the difference. You can put your salary directly into your offset sub-account or throw in your savings.
If your loan amount is $500,000 and you have $50,000 in your offset sub-account, then you will only be charged interest on $450,000. Because you pay less in interest, an offset sub-account can help you pay off your mortgage sooner while still having the ability to access the money you have in your account.
Which loan payment frequency is the best one?
Generally, the more frequent the payments you make, the more you will save in interest over the term of your mortgage. However, the repayment frequency you choose should be one that fits your financial situation. Be sure to talk with your lender before deciding.
Check out our home loan payment calculator to get an estimate of what your repayments would look like with weekly, fortnightly, or monthly home loan payments. You can apply online to get started your home loan started! Or, if you want to know more about offset sub-accounts, get in touch with our friendly lending specialists today to discuss how you can save more on your home loan.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
