paying fortnightly on home loans

Does paying fortnightly really make a difference?

One of the most common questions asked by anyone taking out a new home loan is “What’s the best way to pay it off faster?” Yet one of the simplest ways to do this is often overlooked by many home owners, and it all comes down to changing your repayment schedule to paying fortnightly.

The fact is that many home owners misunderstand just how powerful this simple technique can be, but it’s a method of managing your home loan repayments that can not only save interest, but can also trim years off the life of a standard, variable rate home loan.

Here’s how paying fortnightly works.

Let’s assume that you buy a property and take out a home loan with repayments of $3,000 per month. Your total repayments for the year would then be $36,000. Let’s then suppose that you split the monthly repayment in half, (that’s $1,500), and start paying fortnightly. One look at the calendar will show you that you would then be making 26 payments per year, (because there are 52 weeks in a year), which would result in paying off a total of $39,000 per year…an extra $3,000 per year when compared with your monthly repayment schedule.

There is also a secondary benefit to this approach. Your lender will calculate the interest charges on your loan on a daily basis. So, by paying fortnightly instead of monthly, your interest will be calculated on a slightly lower amount for two weeks of the months, which will further reduce your total interest over the year.

As you can see from the examples above, simply changing your repayment plan to paying fortnightly instead of monthly can save you interest as well as paying off more of the loan more quickly. The important thing is to make sure you divide your monthly repayment in half if you’re going to take the fortnightly approach.

Helping you to save money on your home loan is just one of the ways that Ian Reid Vendor Advocates can assist you. You’ll find lots more savings detailed in our free booklet, Fatal Real Estate Traps Exposed. Why not download a copy while you’re here, if you’d prefer you can give our helpful Customer Service team a call on 9430 0000.