When you take on a mortgage, there’s a lot to consider. One of the factors that need be considered is the frequency of your repayments.
At first, it may seem straightforward or insignificant: Don’t you just wind up paying the same amount anyway? The answer, actually, is no. And when you’re taking on a mortgage that can last several years, small incremental differences can add up to big financial wins in the long run.
Doing the math
The simple truth is: If you pay fortnightly, you will pay off your mortgage sooner.
Let’s imagine your monthly repayments were $100 (for simplicity) and your fortnightly repayments were $50:
- If you paid monthly, you’d pay $1,200 per annum (12 x $100)
- If you paid fortnightly, you’d pay $1,300 per annum (26 x $50)
That means that paying fortnightly nets you an extra month’s worth of repayments per year.
Considering that mortgages typically last for 10+ years (and in some cases multiple decades), the compound effect of this change over time could be huge. Every year, you’d be saving a month’s worth of interest. Plus, your home would be yours quite a bit sooner.
For example, if you took out a $600,000 home loan over a 15-year period set at a fixed interest rate of 4.5%, paying fortnightly would save you 1 year, 7 months and $27,000 in interest. If it was a 20 year mortgage with the same parameters, you’d save around 2 years, 5 months and $41,500.
So while you may have been inclined to assume that the difference between fortnightly and monthly payments is negligible, the math shows otherwise. If you already have a mortgage, or you’re considering taking one on, use our Mortgage Repayment Calculator to calculate your fortnightly repayments or talk to our lending managers.
Mortgage House
At Mortgage House, we’re no strangers to the homeowner’s journey. It’s a long (but rewarding) one.
But don’t worry, we can help with that.
If you’re thinking of buying a home, you can contact us for advice about the best options for you when it comes to your mortgage. The cost of your mortgage can drastically affect your financial planning, so it pays to speak to the experts about it.
