05 May 2017

# Why Paying Fortnightly Beats Paying Monthly

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.