When it comes to paying off your home loan, the frequency of your repayments can make a surprising difference. Whether you’re just starting your mortgage journey or wondering about ways to pay off your loan faster, choosing between weekly, fortnightly or monthly repayments is more than just a preference, it can affect how much interest you pay and how quickly you become mortgage-free.
In this guide, we’ll look at each repayment option, compare them all side by side, and help you decide which repayment schedule best suits your budget and long-term financial goals.
Understanding Repayment Frequencies
Before we compare, let’s look at what each repayment frequency means in simple terms.
Monthly repayments: Probably the most common default option with lenders, this is where you make 12 payments per year. It works well with how many people receive their salaries or manage their budgets.
Fortnightly repayments: This is where you make 26 payments per year (one every two weeks) which equates to approximately 13 monthly repayments annually. It’s a great way to reduce your loan term and interest costs.
Weekly repayments: This has similar benefits to fortnightly repayments, but you make 52 payments per year (one every week). It can be better for many people’s cashflow, especially if you’re paid weekly.
Try Homestar’s Mortgage Repayment Calculator for a quick look at how changing your repayment cycle could affect your mortgage.
Side-by-side comparison: What saves more?
To help show the impact of different repayment frequencies, let’s look at a very simple example. The borrower in question has a mortgage of $500,000 over 30 years and wants to know details of what repayments would be under each frequency, and how much time and interest would be saved by opting for one over the other.
For the sake of simplicity, this example assumes the fortnightly and weekly payments are exactly half or quarter of the monthly repayment, effectively making one extra monthly repayment per year.
|
Loan Details |
Monthly |
Fortnightly |
Weekly |
|---|---|---|---|
| Loan Amount | $500,000 | $500,000 | $500,000 |
| Interest Rate | 6.00% p.a. | 6.00% p.a. | 6.00% p.a. |
| Loan Term | 30 years | 30 years | 30 years |
| Repayment Frequency | 12x/year | 26x/year | 52x/year |
| Repayment Amount | $2,998.34 | $1,499.17 | $749.59 |
| Total Interest Paid | $579,402 | $509,432 | $507,931 |
| Time Saved | ✘ | 4.5 years | 5 years |
As you can clearly see, both weekly and fortnightly repayments can potentially save you money, when compared to monthly repayments.
But how does this actually work?
Firstly, interest on home loans is generally calculated daily, so the more frequently payments are made, the faster you chip away at the principal on your loan, which can help save you interest over the term of your home loan.
Secondly, switching to fortnightly repayments helps you pay your loan off sooner because you are paying the equivalent of half your usual monthly repayment amount each fortnight. Here’s how:
- There are 12 calendar months in a year (which would equal 12 monthly repayments)
- With 52 calendar weeks, you would be making 26 fortnightly repayments
- By making 26 fortnightly repayments a year (at half your usual monthly repayment per fortnight), you are paying off more than you would if you made only 12 monthly home loan repayments per year
- This fortnightly system makes the equivalent of 13 monthly repayments in a 12-month period
The overall point is that making more frequent payments – fortnightly or weekly – can save you thousands in interest and shave years off your loan term.
Try Homestar’s Mortgage Repayment Calculator to see how changing your repayment cycle could affect your mortgage.
Important note:
Not all lenders calculate fortnightly and weekly repayments using the ‘extra repayment’ method. In fact, some simply divide your monthly repayment by two or four, without adding an extra month’s worth of repayments annually. That means there’s no real benefit in interest savings. Make sure you ask your lender how they calculate your repayments before switching to more frequent payments.
So, which option is best?
When you’re looking at the ‘best’ option for your situation, there are some important things to consider before you choose to switch to a new repayment frequency.
How often do you get paid? If you’re paid weekly or fortnightly, matching your repayment schedule to your pay cycle can make budgeting simpler.
How stable is your cashflow? Paying more frequently means you are dealing with smaller amounts, but you will need to have more frequent access to funds.
How flexible is the lender? Some lenders may not offer weekly or fortnightly repayments. And as mentioned above, they may calculate repayments differently. Make sure to ask.
In the end, the ‘best’ option is the one that takes into consideration your lifestyle, your income cycle and any budgeting habits you have.
If your goal is to save on interest and pay off your home loan sooner, fortnightly or weekly repayments (when structured correctly) are the smart move.
It’s worth a mention that consistency and affordability are more important than simply aiming for the fastest result. So why not talk to the team at Homestar about how we can work together to accelerate your home ownership.
Tips for switching repayment frequency
Most lenders offer monthly repayments as a default. However, it’s not hard to switch to more frequent payments. You simply need to talk to your home loan lender. In fact, you may even be able to make the change online.
TIP 1: Set up automatic payments.
If you’re happy to make the switch, you could consider setting up an automatic payment (or direct debit) from your savings account to pay your lender each week, fortnight or month as needed – that way you won’t risk missing a payment. Just make sure to double check that you’re covering at least the minimum repayment amount required by your home loan lender.
TIP 2: Match your repayment frequency to your pay cycle.
Your own financial circumstances may make one option easier than others. For example, if your pay cycle is weekly, it can make sense to set up weekly home loan repayments and schedule each repayment to come out of your account the day after you get paid. That way you’ll limit the chances of accidentally overspending.
TIP 3: Get professional financial advice if you need it.
Most lenders offer monthly repayments as a default. However, it’s not hard to switch to more frequent payments. You simply need to talk to your home loan lender. In fact, you may even be able to make the change online.
Understanding your repayment options and making smart choices can save you thousands of dollars over the course of your mortgage. Even a small change, like switching from monthly to fortnightly repayments, can have a big long-term impact.
At Homestar Finance, we’re here to help you make smarter decisions about your home loan. Whether you want to explore flexible repayment options or refinance for a better deal, we’ll work with you to find the solution that fits.
Ready to save on your home loan?
Chat with one of our home loan specialists today and find out how you can optimise your repayments. Contact us or call 1300 462 209.
Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.
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