Should you pay your home loan monthly or fortnightly?

Monthly or fortnightly repayments? Regardless if you have just recently been conditionally approved for your first home loan, or just looking to refinance to get a better rate. Clients always ask me how they can shave some extra years off their home loan term. While there are multiple in-depth strategies that can be implemented and used to help you, a simple change in the way you repay your loan can have a major effect on the amount of interest you pay over the entire loan term.

But wait, why and how does repaying your mortgage fortnightly save money?

Let’s be Frank, banks don’t want you to pay off your home loan. Every single thing they do is purposely done to keep you in debt, for as long as possible.

Their repayment system calculates interest daily, not monthly, yet they set up every home loan with a monthly repayment by default. So if you are only paying your home loan off via monthly repayments, then you only make 12 repayments each year. However, punters who are making fortnightly repayments actually make 26 repayments. This significantly decreases the amount of interest that you pay and can shave years off your mortgage.

But how, I hear you asking…

Like I sad above, the banks system is looking at your home loan balance each and every day. Then it takes your current balance, minus offset, and adds interest to your balance.

Say you you have $1000 loan. Your interest rate is 3%. Each day, the bank is charging you $30 of interest.

However, if you have fortnightly repayments, then you get to change the figure that the bank is calculating the interest on (the $1000 above is lowered by your payment and then the interest charged is lower) 

Now again, we are only talking about $1000. If this is $1,000,000 then these numbers change, fast.

So, what about weekly mortgage repayments?

I feel you already asking if weekly is even better and you’re absolutely right. However the difference is not as significant as monthly vs fortnightly. Yet, if you can do weekly then I would consider running these numbers as well.

Do I need to refinance to make this change?

Absolutely not!

You can do this using your banking app or by calling your current broker or bank to get this sorted asap.

Yet, you should be refinancing your home loan every two years at least.

But why?

Well, many reasons to be honest but mainly, your life changes and as such, so should your mortgage. The biggest reason is he fact that banks always want new clients. They charge you more so they can win new business. They do this by offering  lower rates that they will not offer you, even if you call up and complain. 

70% of Australians now use a broker to help them handle the banks. If you’re still in the 30% that do it yourself, put us to the test. I would pop in your details below to see if we can get you a better deal then your current set up.

If you already have a broker that you are happy with then contact them. The should be able to help. If your not happy with your current broker then fill your details in below for us to help you get a better rate and restructure your home loan.

Monthly or fortnightly repayments?