Is it better to pay your mortgage weekly, fortnightly or monthly?

Most borrowers choose to pay their home loan monthly and don’t realise they have the option to make fortnightly or weekly repayments. But did you know that increasing how often you pay could save you thousands of dollars on your home loan?

We’ll show you how it works.

Monthly mortgage repayments are typical, but paying your home loan in fortnightly or even weekly instalments lowers how much interest you’ll pay over time. Not only that, it can help you pay off your home loan faster.

But why? It’s because interest on your home loan accrues daily, so the more often you chip away at it, the less time interest has to accumulate.

Think of it like this – there are more fortnights and weeks in a year than there are months. Over a year, you’ve got 26 opportunities to pay off your mortgage (if paying fortnightly) or 52 opportunities (if paying weekly).

Here’s how increasing your repayment frequency works with an example:

• Your mortgage repayments are $3,000 a month
• You pay $36,000 a year
• If you pay your mortgage fortnightly, you could pay $1,500 every two weeks
• You would then pay $39,000 a year

If you’re able to keep this up for multiple years of your mortgage, there’s potential to shave years off your home loan and save thousands of dollars that would’ve been spent on interest in the process.

How much you save by switching from monthly to fortnightly or weekly repayments depends on several factors including:

• Home loan size
• Interest rate
• Term length
• Fees
• How many years into your mortgage you switch to fortnightly or weekly

We’ve pitted monthly repayments against fortnightly and weekly in the examples below to give you an idea of how much you could save by changing your repayment frequency.

If you ask your lender to switch to a more frequent repayment schedule, it’s likely it will recalculate the minimum payment so that you would pay essentially the same or slightly less interest overall.

Here’s an example of what it might look like.

As illustrated in the table above, the amount of interest you could save by asking your lender to recalculate your repayments to a fortnightly or weekly schedule is negligible. In the example above, you would save just over $1,000 over 25 years by paying weekly.

To make increasing your repayment frequency really work for you, you need to take the full monthly payment and divide it in two for fortnightly payments and in quarters for weekly payments.

That’s exactly what we’ve done in the first table on this page, and that’s how to save interest in a significant way – but your repayments will be higher overall as shown in the first table.

So to make a real difference, you’d need to switch to fortnightly or weekly repayments with your lender and pay a little extra on top up to the amount in the first table.

For example, on a $700,000 loan with a 5.50% p.a. interest rate over 25 years:

• A monthly repayment would be $4,299
• A fortnightly repayment would be $1,983
• But $4,299 divided by 2 is $2,150
• You’d need to put an extra $167 a fortnight into your mortgage to have a significant impact on the interest

If you need, discuss more options with your lender or financial advisor.

Paying your mortgage once a week or once a fortnight could be tricky if you’re on a monthly pay cycle. If you swap to weekly or fortnightly repayments, you may need to create a budget to ensure you have enough cash for other expenses towards the end of the month.

This is less of an issue for those with pay cycles that sync up with weekly or fortnightly repayments, and there are real benefits to paying more frequently.

There’s more you can do to save interest on your home loan. If you’re not able to change your repayment frequency long term, you can aim to make lump sum repayments when you can.

Lump sum payments can be large (such as an inheritance), or smaller amounts (such as your yearly tax refund).

Most lump sum payments are available for redraw, meaning you can withdraw the extra repayments from your home loan if you need the money for another purpose. Some lenders have conditions on home loan redraw, including fees and minimum redraw amounts.

You can also use an offset account, which is a transaction account that’s linked to your home loan. Offset accounts are beneficial because the money you have in this account ‘offsets’ the amount owed on your home loan and reduces the interest you’ll need to pay.