Are weekly, fortnightly or monthly home loan repayments better?

MICHAEL LUND
Most home loans in Australia have a monthly repayment scheduled by default. But you could potentially save money if you can alter the frequency of your repayments. Here we explain how to choose the repayment option that meets your needs.

In this article, we cover:

How often can you make repayments on home loans?

When you’re looking for a home loan, most lenders will show you what the monthly repayment will be on the amount you want to borrow.

But some providers will offer you the option to make repayments weekly or fortnightly, 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 are likely to encounter.

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

If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.

Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.

* Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning.

Weekly vs fortnightly vs monthly mortgage repayments

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

One reason for this is that interest on home loans is generally calculated daily, so the more frequent payments you make, the more you eat away at the principal of your loan, which can save you money in interest over the life of your loan.

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

There are obviously 12 calendar months in a year, but with 52 weeks that means you would be making 26 fortnightly repayments.

By making 26 fortnightly repayments a year that are each half your monthly repayment, you are paying more money than you would if you just made 12 monthly repayments per year. You are effectively making 13 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 monthly repayment a year.

We’ve given a case study example below 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 variable interest rate of 3.27% a year, and opt to repay the principal and interest over 30 years. Using Canstar’s mortgage calculator, we can estimate that they would have a monthly repayment of $2,182.52, excluding any ongoing or annual fees that may apply.

If they switched to fortnightly repayments of half their monthly repayment amount, so $1,091.76, 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 nearly four years sooner and save $41,292 in interest, again excluding fees and assuming their interest rate remained the same throughout the loan. If they opted for weekly repayments of $545.38, a quarter of their monthly repayment figure, they would save $41,660.

Monthly Repayments Fortnightly Repayments Weekly Repayments
Required repayments per year $2,182.52 x 12 $1,091.76 x 26 $545.38 x 52
Total paid per year $26,178.28 $28,359.81 $28,359.81
Extra paid per year n/a $2,181.52 $2,181.52
Total interest payable over 30-year loan term $285,349 $244,057 $243,689
Interest saved over 30 years n/a $41,292 $41,660
Time saved n/a 3 years 11 months 4 years

Source: www.canstar.com.au – 12/07/2021. Based on the average standard variable rate (3.27%) of all owner -occupier variable home loans on Canstar’s database available for a loan amount of $500,000, 80% LVR and principal & interest repayments, excluding intro-rate and first home buyer only loans. Calculations assume a loan term of 30 years, with the interest rate remaining the same throughout that time and excluding fees. Fortnightly and weekly repayments divide the scheduled repayment, based on a monthly repayment schedule, by 2 and 4, respectively, compared to a monthly repayment schedule.

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 or fortnightly vs monthly repayments by using our Extra Repayments Calculator. You can easily make calculations like this, along with calculating how other factors could change your repayments, such as your interest rate and loan term.

Is it easier to make weekly, fortnightly or monthly repayments?

All of the available repayment frequency options can be relatively easy to organise. The process typically involves speaking to your lender to ask whether you can change your repayment frequency.

A young couple renegotiating their home loan with their lender
A young couple renegotiating their home loan with their lender. Image: Burlingham/Shutterstock.com

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.

This could be an option worth pursuing if you doubt you’d be able to remember to make a repayment every week or every second week in a weekly or fortnightly system. Just make sure you are covering at least the minimum repayment amount required by your lender.

Your own personal circumstances may make one option easier than the others in your particular case.

For example, if you get paid weekly, you may decide it makes sense to make weekly home loan repayments. In that case, you could schedule each repayment to come out of your account the day after you get paid, to limit the chances of you accidentally overspending and ending up without enough money left to make a home loan repayment.

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.

How do you switch from monthly repayments?

Check whether your lender offers the payment frequency you desire, such as weekly or fortnightly.

Call your lender, head into a branch, or use its online portal if you manage your loan online to apply to switch your repayment frequency.

Ask your lender whether it can calculate your fortnightly payments as half of a monthly payment, paid fortnightly (which could save you interest). Also be sure to ask whether any additional fees apply if you choose to make repayments more frequently.

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.

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.

This is an updated version of an article originally written by TJ Ryan.

Cover image source: eamesBot/Shutterstock.com


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