Conversations with a Pug – Home Loan Repayments: Monthly, fortnightly or weekly |

Conversations with a Pug – Home Loan Repayments: Monthly, fortnightly or weekly


Home Loan Repayments: Monthly, fortnightly or weekly

Have you ever considered how the frequency of your home loan repayments could affect how much you pay overall?

Most people choose to line up their home loan repayments with their paycheck, which is a relatively smart idea, but you could be putting yourself in a better position if you switched to paying on a fortnightly or weekly basis.

How so? Let’s say you’re making monthly repayments of $1000, which adds up to $12,000 a year. If you changed to repayments of $500 every fortnight, over the year you’d actually pay back $13,000.

That’s because while there are 12 months in the year, there are 26 fortnights and 52 weeks. By opting for the latter two, you could be shaving an extra month off your mortgage each year, without putting much of a strain on your budget.

And because interest on home loans is usually calculated daily, by increasing repayments you’re not only paying back the full amount of your home a lot faster, you’re also reducing the amount of interest you’ll accrue over the lifetime of the mortgage.

Of course, this assumes your lender calculates your fortnightly repayments by halving the amount you’d be paying monthly, and weekly repayments by dividing it by 4. Some, however, might use the “true” fortnightly amount, by multiplying your monthly repayments by 12 then dividing that amount by 26.

So how much could weekly or fortnightly payments save you?

To put things in real terms, let’s look at a $500,000 home loan with a variable interest rate of 3.00% over 30 years. Monthly repayments on this loan would be $2,108, and you would pay a total of $258,887 in interest over the lifetime of the loan.

Switching over to fortnightly payments of $1,054 a fortnight would find you paying a total of $224,492 in interest, a saving of roughly $34,395 over 30 years. And you could save slightly more if you opt for weekly repayments.

$500,000 mortgage Monthly Fortnightly Weekly
Repayments $2,108.02 $1,054.01 $527.01
Total interest paid $758,887.26 $724,491.62 $724,282.82
Total interest saved $0.00 $34,395.64 $34,604.44

How to switch your repayment frequency

The first thing you’ll want to do is get in contact with your lender and ask how your weekly or fortnightly repayments would be calculated.

If they take your total annual repayments and divide the number by 26 (fortnightly) or 52 (weekly), then there won’t be much point changing, unless doing so would help you budget better.

If, however, your lender arrives at your fortnightly repayments by halving what you’re currently paying on a monthly basis and charging that every two weeks, it might be worth making the switch. Just make sure to ask if any penalties will apply.

So now we’ve got repayment frequency cleared up, how about fixing up your interest rate. Why not give yourself a quick home loan health check and compare the best rates on the market?

Source: Mozo



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