Managing a mortgage is by far one of the most significant financial commitments most people make in their lifetime. So, it’s safe to say that finding new ways that you can save on this expense is not only going to benefit you in the short term but the long term as well. It may come as a surprise to some, but one of the best ways that you can save on your mortgage is by switching your payments from monthly to fortnightly. This works to reduce your overall interest paid, and is able to save you some serious money in the long run too!
How does it work?
By paying off your mortgage in fortnightly installments, as opposed to monthly, you are essentially making an additional monthly payment each year (13). This is because monthly payments are calculated based on 12 months per year, while fortnightly payments allow for up to 26 payments per year due to the differing days in each calendar month e.g 28, 30, or 31 days per month.
By making fortnightly mortgage payments you could unlock additional savings on interest in two main ways:
- The first being that if you are making more frequent payments to bring down your principal balance, then there will be less balance to calculate interest.
- The sooner you pay off the mortgage, the closer you are to wiping out your interest payments entirely.
Example
If you had a 30 year mortgage of $400,000 with a fixed interest rate of 5%, then you would be looking at a rough monthly repayment figure around $2,150.
However, if you switch to a fortnightly payment schedule then you will be paying $1,075 every two weeks.
By making this switch, you can save up to five years’ worth of mortgage payments, which is around 70k in total interest on your loan.
Things to consider
- Not all lenders will accept fortnightly mortgage repayments, so it is important to ensure you speak with your mortgage broker or lender first before taking this next step.
- There may be fees associated with changing from monthly to fortnightly payments.
- Your lender may hold partial payments so ensure that you are aware of any T&Cs prior to making any decisions.
Wrapping up
If you’re financially able to, then making fortnightly mortgage payments can have some incredible benefits on your mortgage length, and financial situation. However, if your lender doesn’t allow for this, or it’s just not realistic, there are other ways you can still set yourself up for a shorter-term mortgage, and greater savings.
Reach out to our team today to explore whether fortnightly mortgage payments align with your financial goals.
Let us point you in the right direction and turn your homeownership dreams into a reality.