Changing your home loan repayments from monthly to fortnightly can make a massive difference in the amount of interest you pay and time spent paying your loan off.
This is because there 12 months in a year but there are 26 fortnights. By switching to fortnightly payments you'll end up making an extra monthly payment each year, paying off more of your home loan and freeing you from debt faster.
Try it out for yourself in the calculator below.
How to use the fortnightly repayment calculator
Say you have a loan of $400,000 charged at 2.75% over 30 years. Your monthly repayments would be $1,632.96 with an annual repayment of $19,595.52.
If your lender calculates your 26 fortnightly repayments by halving your monthly repayments, you’ll pay $816.48 every second week for an annual total of $21,228.48. This equates to an extra payment of $1,632.96 a year.
This means you’ll pay off your loan three years and five months earlier and save $23,920 in interest.
There’s a catch though. Not every lender calculates repayments like this.
True fortnightly repayments versus bi-monthly
Here's what one expert says you need to watch out for.
Glenn Braganza from 1st Choice Financial in Sydney’s Inner West, says you should be aware of how lenders will calculate repayments before you change them to fortnightly.
"Some banks will allow you to change your repayment frequency, but they’ll take your monthly repayment multiplied by 12 months and divided by 52 weeks. Then they’ll multiply this by two for fortnightly payments."
Calculate your loan repayments
If a lender decides to calculate the repayment like this you’ll pay a lower amount each fortnight, putting you back at square one. In our example this would mean you’d pay $830.15 every fortnight rather than $899.33.
According to Braganza even if you change your repayments to 'true' weekly repayments, you can still save around $400 over the course of the loan.
"The problem occurs when you ring up a lender, because some lenders by nature will calculate it their own way and there's no two ways about it. So if you ring the Commonwealth Bank they’ll calculate it by halving the monthly repayments and do that. But some lenders will calculate a true fortnightly repayment," he says.
Check how your lender will calculate fortnightly repayments. If you start paying fortnightly, you could be in the fast lane to paying off your mortgage too.
To see how much your repayments would be normally, use our home loan repayment calculator.
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