Changing your home loan repayments from monthly to fortnightly can make a massive difference in the amount of interest you pay and time spent paying your loan off.
This is because there 12 months in a year but there are 26 fortnights. By switching to fortnightly payments you'll end up making an extra monthly payment each year, paying off more of your home loan and freeing you from debt faster.
Try it out for yourself in the calculator below.
Say you have a loan of $400,000 charged at 2.75% over 30 years. Your monthly repayments would be $1,632.96 with an annual repayment of $19,595.52.
If your lender calculates your 26 fortnightly repayments by halving your monthly repayments, you’ll pay $816.48 every second week for an annual total of $21,228.48. This equates to an extra payment of $1,632.96 a year.
This means you’ll pay off your loan three years and five months earlier and save $23,920 in interest.
There’s a catch though. Not every lender calculates repayments like this.
Here's what one expert says you need to watch out for.
Glenn Braganza from 1st Choice Financial in Sydney’s Inner West, says you should be aware of how lenders will calculate repayments before you change them to fortnightly.
"Some banks will allow you to change your repayment frequency, but they’ll take your monthly repayment multiplied by 12 months and divided by 52 weeks. Then they’ll multiply this by two for fortnightly payments."
If a lender decides to calculate the repayment like this you’ll pay a lower amount each fortnight, putting you back at square one. In our example this would mean you’d pay $830.15 every fortnight rather than $899.33.
According to Braganza even if you change your repayments to 'true' weekly repayments, you can still save around $400 over the course of the loan.
"The problem occurs when you ring up a lender, because some lenders by nature will calculate it their own way and there's no two ways about it. So if you ring the Commonwealth Bank they’ll calculate it by halving the monthly repayments and do that. But some lenders will calculate a true fortnightly repayment," he says.
Check how your lender will calculate fortnightly repayments. If you start paying fortnightly, you could be in the fast lane to paying off your mortgage too.
To see how much your repayments would be normally, use our home loan repayment calculator.
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Disclaimer: It is advised that borrowers speak with a mortgage broker or accountant regarding their home loan structure and repayment frequency to ensure that it will suit their financial situation.
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Just in regards to this. What if you had an offset account set up and you were able to place those fortnightly repayments into the account anyway for the repayments to then be taken out monthly ?
Hey Daniel!
Thanks for the question.
The effect of fortnightly or bi-monthly repayments is to add an extra monthly repayment towards your home loan each year, so a similar effect might be able to be obtained by depositing similar extra amounts into an offset account. You might want to go through the sums with a mortgage broker, accountant or with your lender to find out exactly how it’ll affect your loan term.
I hope this helps,
Marc.
Should I be paying a fixed loan differently? Currently it is being paid weekly.
Hi Denise,
Thank you for contacting finder.com.au, a financial comparison website.
Each individual’s specific circumstances and needs are different and they should pay off their loan in a way that suits them, you can use the calculator on this page to see how changing the repayment frequency of your loan will affect your circumstances.
If you want further advice I would recommend speaking to a mortgage broker, financial advisor or your lender directly.
Regards
Jodie