Fortnightly loan repayments
Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact me to discuss your individual circumstances.
Should you pay your loan repayments fortnightly rather than monthly?
Interest on home loans is calculated daily on the outstanding balance and charged to the loan account monthly.
If you have an offset account, then the interest is calculated daily on the loan balances less the balance in your offset account.
There are 12 months in the year (fact).
Generally there are 26 fortnights in the year (not always, but mostly).
- If you make additional repayments then the interest that the bank charge you will be less, and you will pay off your home loan more quickly.
- If you pay half of your monthly payment in the middle of the month, then for the second half of the month your balance is lower, and less interest is charged.
- If you are paid fortnightly it could help you budget from pay to pay.
- If you divide your monthly repayment by half and pay this amount every fortnight, then you will end up making one whole month’s extra repayment in that year.
Things to consider
- If you have an offset account, then it doesn’t make any difference, whether the money is paid into your loan as an additional repayment or is sitting in your offset account.
- Does your lender allow you to align your fortnightly repayments with your pay dates?
- Does your lender calculate fortnightly repayments by dividing your annual repayments by 26, or by dividing your monthly repayments by half?
- If you pay half of your repayments and make them fortnightly you will make an extra month’s repayments in a year and this will affect your cashflow.
- We can run a loan comparison for you if you want to quantify the loan benefits that making a set amount of fortnightly repayments will have for you. I just need to know:
- Current monthly repayments
- Your loan interest rate
- How much you currently owe on your home loan
- How much money you have in your offset account
- How much you want your fortnightly repayments to be.