Does It Matter If You Pay Your Mortgage Weekly, Fortnightly, or Monthly?
Naturally, many people look for ways to reduce interest costs and pay off their loan faster. A common question that arises is whether switching to weekly or fortnightly payments—rather than monthly—can make a significant difference. The answer can vary depending on your mortgage setup, particularly if you have a 100% offset account. Let’s unpack this topic.
How Mortgage Interest is Calculated
One key thing to understand is that lenders calculate interest on your mortgage daily. This daily interest is based on your outstanding loan balance at the end of each day, meaning every dollar you repay can make an immediate impact on the interest you’re charged. This is where choosing to pay more frequently, like weekly or fortnightly, can potentially save you money over the long term—especially if these payments add up to more than the standard monthly repayment.
Does Payment Frequency Impact Interest Paid?
For many borrowers, switching to weekly or fortnightly payments can slightly reduce the overall interest paid over the loan term. By paying more frequently, you reduce your loan balance sooner, which can reduce the total interest you pay. Here’s why:
More Payments per Year: With fortnightly payments, for instance, you make 26 payments per year instead of 12, meaning you effectively make one extra monthly repayment each year. This can help pay off your mortgage a bit faster.
Interest Accrual: Each payment reduces your principal balance, so making payments more frequently can mean your principal balance is lower more often, which in turn reduces the daily interest accrued.
However, the savings from these changes are often modest and may not be a game-changer, especially for borrowers who already have a 100% offset account in place.
The 100% Offset Account Advantage
A 100% offset account can eliminate the need to worry about payment frequency. With an offset account, every dollar in the account offsets an equivalent amount on your mortgage, effectively reducing the loan balance on which interest is calculated.
If your offset account holds a significant balance, it will continually work to lower your daily loan balance—and therefore the interest charged—regardless of whether you pay weekly, fortnightly, or monthly. This can be particularly beneficial for those who are high-net-worth individuals or professionals with fluctuating income, such as entertainers, who might receive irregular payments and deposits.
What’s the Best Approach for You?
If you don’t have a 100% offset account, switching to more frequent payments can help save on interest, though the difference may be modest. On the other hand, if you have a fully functional offset account with a good balance, the timing of your payments becomes less critical since your offset account is already reducing your interest daily.
A few additional considerations:
Your Cash Flow: Weekly or fortnightly payments can be easier to manage from a cash flow perspective, as they might align better with your income schedule, particularly if you’re paid weekly or bi-weekly.
Peace of Mind: For some borrowers, knowing they’re making regular contributions can provide peace of mind and help build a habit of financial discipline.
Speak with an Expert
Whether you’re considering changing payment frequency or setting up a 100% offset account, understanding how these choices impact your specific mortgage situation is key. At Rosh Partners, we’re here to guide you through these decisions. We help you understand how payment options, loan structures, and offset accounts can work together to help you reach your financial goals sooner.
If you have questions about the best approach for your mortgage, get in touch with us. Together, we can tailor a mortgage solution that maximizes your savings and helps you make the most of your hard-earned income.
