Home Loan Repayments: Monthly versus weekly
Have you ever considered the frequency with which you pay off your home loan? Most people choose to line up their home loan repayments with their pay check and it is a relatively smart idea, but you could be paying off more on your home loan every year if you switched to paying on a fortnightly or weekly basis, and it doesn’t have to put a major strain on your budget.
Let me show you how. Repaying $1000 a month comes to the equivalent of $12,000 a year on your home loan. If you changed to repayments of $500 every fortnight, over the year you’d actually payback $13,000 because there are 26 fortnights in a year. That’s one whole extra month off your mortgage. Because interest on home loans is usually calculated daily, by increasing repayments not only are you paying back the full amount of your home a lot faster, you’re also reducing the amount of interest you’ll accrue over the lifetime of the mortgage.
So how much could you save over the life of a home loan?
To put it in a more relative perspective let’s look at a standard $330,000 home loan with a variable interest rate of 6.23% over 30 years. Monthly repayments on this loan would be $2028, and you would pay a total interest of $399,635 over the lifetime of the loan. Switching over to fortnightly payments of $1014 a fortnight, you would pay a total interest of $306,731, a saving of roughly $93,000 over 30 years. That’s ninety three thousand dollars incase you think your eyes are playing tricks on you! And the savings look even better if you can make weekly repayments (see below).
If you live in a typical Sydney or Melbourne suburb and your loan is more likely around $600,000, you could save closer to $167,000 by changing your repayment frequency from monthly to fortnightly.
How to switch your repayment frequency
All you need to do is check that your bank offers fortnightly and weekly payments and that you won’t be penalised.
Okay, so now we’ve got repayment frequency cleared up, how about fixing up your interest rate (you could be doing a lot better than the standard 6.23% we used in the example). Why not give yourself a quick home loan health check and compare the best rates on the market?
Product data correct at the time of writing.