Are weekly, fortnightly or monthly home loan repayments better?

Most home loans in Australia have a monthly repayment scheduled by default. But you can potentially save money if you can increase the frequency of your repayments to fortnightly or even weekly. Here we explain how that works.

How often can I make repayments on my home loan?

There are several options you can take to make repayments on your home loan. When looking for a home loan, most lenders will show you what the monthly repayment will be on the amount you want to borrow.

Some providers may offer you the option to make repayments fortnightly (every two weeks) or weekly, depending on the type of loan you’re after. Others may allow you to make repayments more or less frequently, such as quarterly or annually, but monthly, fortnightly and weekly are the most common options you’re likely to encounter.

You would need to check with your loan provider to see what (if any) fees, terms and conditions may apply if you are considering changing the repayment frequency on your loan.

Can I save with weekly vs fortnightly vs monthly mortgage repayments?

Both weekly and fortnightly repayments can potentially save you money compared to monthly repayments, provided you’re allowed to make the change.

One reason for this is the way interest normally accrues on a home loan.

The interest on the outstanding balance of a home loan is generally calculated daily, then added up over the period of your loan repayment. If that repayment period is monthly then that soon adds up to about 30 days of interest, depending on the number of days in the month and how your lender makes the calculation.

If you can increase the frequency of your repayments, to fortnightly or weekly, then you eat away at the outstanding amount of your loan much earlier. This can save you money in interest over the life of your loan.

But there is another simple trick that can help you save money. Change from monthly to fortnightly repayments and pay half your monthly repayment each time, assuming your lender allows this.

Monthly repayments are generally paid every calendar month, and there are 12 calendar months in a year, but spread over 52 weeks, and 52=26⨉2=13×4.

So if you can make fortnightly payments at half your original calendar monthly repayment then you would be making 26 fortnightly repayments in a year, which is the same as 13 four-weekly payments.

That means you’re paying more money than you would if you just made 12 calendar monthly repayments per year. You are effectively paying the same as 13 calendar monthly repayments in a 12-month period, and increasing your repayment amount is one way to pay off your loan quicker, saving you money.

You could also change to weekly repayments at a quarter of your monthly repayment plan. That again would give you 52 weekly repayments, again the equivalent of an extra calendar monthly repayment a year.

Let’s take a closer look at a case study example to show how this works.

Increasing the frequency of home loan repayments: a case study

John and Sarah, a hypothetical pair of borrowers, take out a new home loan together of $500,000 at a typical variable interest rate of 6.66% a year, and opt to repay the principal and interest over 30 years.

Using Canstar’s mortgage calculator, we can estimate they would have a monthly repayment of $3,213, excluding any ongoing or annual fees that may apply.

If they switched to fortnightly repayments of half their monthly repayment amount, so $1,607, they would end up paying off more on their loan by the end of the year, which means they will have paid less interest and actually saved money.

If they stay on a fortnightly schedule they would pay off their loan more than six years early and save $162,208 in interest, again excluding fees and assuming their interest rate remained the same throughout the loan.

If they opted for weekly repayments of $803, a quarter of their monthly repayment figure, they would save $163,729 in interest.

← Mobile/tablet users, scroll sideways to view full table → 

Source: www.canstar.com.au – 7/08/2023. Based on the average owner occupier variable home loan rate on Canstar’s database of 6.66%, available for a $500,000, P&I, 80% LVR loan, excluding introductory and other special condition loans. Calculations assume a loan term of 30 years. Fortnightly and weekly repayments divide the scheduled repayment, based on a monthly repayment schedule, by 2 and 4, respectively.

The bottom line is it could be worth paying more than the minimum requirements on your home loan, if you can afford to and after checking with your lender that you won’t be charged extra for this. The more you pay, the faster you pay off your loan and the less you pay in interest.

You can work out an estimate of how much you could save by making weekly vs monthly or fortnightly vs monthly repayments by using our Extra Repayments Calculator.

How can I set up more frequent payments?

If you want to increase the frequency and amount of your home loan repayments this should be relatively easy to organise. You should talk to your lender to ask what options may be available to you.

Be sure to ask whether any additional fees apply if you choose to make repayments more frequently.

Depending on what they say, if you’re happy to make the switch you could consider setting up a direct debit from your savings account or transaction account to pay your lender a certain amount each week, fortnight or month. Just make sure you’re covering at least the minimum repayment amount required by your lender.

Your own personal circumstances may make one option easier than the others. For example, if you get paid weekly, you may decide it makes sense to make weekly home loan repayments.

As with any financial decision, it’s important to consider all of your different options based on your personal circumstances, and to consider seeking professional advice if you need it.

Are there other benefits to making extra repayments?

Making extra repayments can be useful because if you get ahead in your required repayments, some lenders may allow you to take a “repayment holiday” where you don’t need to make any repayments for an agreed period of time.

For some borrowers, such as seasonal workers or those with a shifting cash flow, this strategy may allow you to pile a lot of your spare cash into your loan when your income is flowing in, and to take a short breather during periods of less income.

If you are interested in this option, you could ask your lender if it would allow you to take a repayment holiday if you are ahead on your home loan payments.

You can use tools like our Extra Repayments Calculator to help you work out how you could pay off your loan faster and save in interest by contributing different extra amounts to your loan repayments.

Depending on whether your particular home loan offers this, you may also be able to redraw on the extra repayments you’ve made over time, which could be useful if you need access to some money. Again though, you’d need to check with your lender to see if there would be any fees for doing this.

While you’re talking to your lender, why not ask for a lower interest rate? Chances are you’re switching repayment frequency because you want to save some money, so there’s no time like the present to try and negotiate a better rate as well.

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