How fortnightly repayments could help you pay your mortgage off sooner

If you have a home loan, you’re likely familiar with interest. Interest is essentially what lenders charge you to borrow money and, in the case of mortgages, it’s applied to funds used to buy a house. But houses are expensive and interest liabilities – which are calculated based on the amount borrowed – can significantly impact the finances of Australian homeowners. For this reason, it’s worth exploring all the strategies that could help reduce your home loan interest obligations.

One such strategy is to switch to weekly or fortnightly repayments. While the default option is typically monthly repayments, opting for weekly or fortnightly home loan repayments can help you pay your mortgage off faster, thereby saving you interest.

Here’s how it works. 

Monthly vs fortnightly repayments: How switching could save you

It’s a simple yet often overlooked concept: Each year has 26 fortnights, but only 12 months. 

Most home loan lenders default to monthly repayments and, when calculating fortnightly or weekly repayments, simply halve or quarter a borrower’s monthly repayment amount. However, because most months are longer than 28 days, borrowers making weekly or fortnightly repayments end up making four extra weekly repayments or two extra fortnightly repayments – equivalent to roughly one extra monthly repayment – each year.

This means you could be making extra repayments on your home loan without even realising it. 

Those extra repayments can add up. Since banks and lenders calculate interest on the outstanding loan balance, paying extra reduces the amount of interest charged over time. This allows more of your regular repayments to go toward reducing the principal balance. Over the life of the loan, this could help you pay off your mortgage faster and potentially save tens of thousands of dollars in interest.

How much could I save by making repayments fortnightly instead of monthly?

How much you might be able to save by switching from monthly to weekly or fortnightly repayments will depend on the size of your home loan and your interest rate. It’s reasonable to assume that a borrower with an average-sized mortgage could save thousands in interest and pay off their home loan years earlier than they otherwise would.

Let’s use an example. Here’s how making fortnightly or weekly repayments could impact a borrower with a $650,000, 30-year home loan and a 5% p.a. interest rate: 

	Monthly repayments	Fortnightly repayments	Weekly repayments
Regular repayments	$3,489	$1,745	$872
Total annual repayments	$41,868	$45,370	$45,344
Time taken to pay off loan	30 years	26 years	26 years
Interest paid over life of loan	$606,162	$494,597	$494,047
Potential savings over life of loan	$0	$111,565	$112,115

^{*Discrepancies may exist due to rounding.}

Why weekly home loan repayments could save you even more

Making repayments weekly rather than fortnightly could save you money in another way: banks and lenders typically calculate interest payable daily.

Most lenders calculate how much interest to charge you based on your outstanding balance each day. By making weekly repayments, you reduce your principal balance more frequently than if you were making fortnightly or monthly repayments. This reduces the daily interest charged, potentially saving you money over time.

That said, the additional savings realised by making weekly repayments (compared to fortnightly) are usually relatively minor. If you’re paid fortnightly or your budget is structured around a two-week cycle, the hassle of managing weekly repayments may not be worth the relatively small benefit.

Monthly, fortnightly, or weekly mortgage repayments: Which is better?

We’ve established that making home loan repayments weekly or fortnightly instead of monthly could save a borrower substantial amounts of money over the long term. However, when deciding to make significant financial changes, there’s more to consider than just potential savings.

Consideration #1: Does your lender allow for fortnightly or weekly repayments?

For starters, not all lenders allow borrowers to make more frequent repayments. While many lenders offer the option to pay your home loan weekly or fortnightly, some may not – especially if you’re making interest only repayments or you’ve chosen a basic home loan product. It’s essential to check your lender’s policies. If it doesn’t allow more frequent repayment options, you might want to consider refinancing to one that does.

It’s also important to check if your lender will penalise you for paying your home loan off faster than expected, as is commonly the case with fixed rate mortgages. 

Consideration #2: Can you meet the extra financial commitment? 

Another key factor to consider is whether your financial belt will stretch to accommodate what is essentially an extra monthly mortgage repayment each year. While paying more off your home loan will save you in interest over the long term, it can strain your finances in near term. It’s important to consider if you’re capable of meeting the extra commitment without impacting your financial health.

Consideration #3: How does your lender calculate repayments?

Most lenders calculate home loan interest liabilities the same way, but it’s worth checking how your lender does things. While most calculate a borrower’s weekly or fortnightly repayments by simply quartering or halving their monthly repayment, others might take a borrower’s expected annual repayment and dividing it by 26. The former approach leads to a borrower paying extra each year, while the latter does not. 

How to change your home loan repayments from monthly to fortnightly or weekly

If your lender allows you to change the frequency of your repayments, the process to do so will likely be straightforward. The exact steps may vary depending on your lender:

• Big four banks, major banks, and large established lenders
  You’ll probably be able to adjust your repayment frequency online or via your lender’s app, and it’s likely a quick and hassle-free process.

• Smaller lenders, non-banks, or mutual banks
  You may be able to change your repayment schedule online or via an app if your lender offers such a service. However, you might need to contact it directly – by phone or email – to request the change.

Your lender’s website is a great place to start. Most lenders provide detailed instructions on how to manage repayment options. If the information isn’t clear, or if you prefer, you might choose to reach out to their customer service team for advice.

Changing your repayment frequency is generally a simple process, but it’s worth confirming any requirements or potential fees with your lender before making the switch.

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