Save interest on your home loan by paying fortnightly
Paying your mortgage fortnightly can save you money in interest over the life of your loan
When you take out a home loan you will need to choose whether to make repayments on a weekly, fortnightly, or monthly basis. Monthly repayments is the most common default choice but it also results in the highest total interest repayments over time. This is good for the lender but bad for the mortgage holder – you! So how can you reduce the interest paid on your home loan?
One way is by opting to pay off the loan fortnightly.
By fortnightly, we mean look at what the monthly amount is, and halve it.
By paying half the monthly amount fortnightly, you’ll be making one months worth of extra repayment off your loan each year, and over the life of the loan this has a significant impact saving you thousands and paying it off sooner.
Let’s look at the maths with an example:
Loan: $500,000
Term: 30 years
Interest rate: 6.7%
Monthly repayment amount: $3,226
Total interest payable in 30 years: $661,501
Making fortnightly repayments of half the monthly repayment amount ($1,613), the total interest payable will drop to $504,955 (you will save over $150,000) and over 5 years off the loan because it will be paid off in 24 years, not 30.
We know that during the 30 year loan term, interest rates might change, you might refinance, you might even sell the property and purchase another, or pay it off sooner with extra money from a better paying job or an inheritance. Life happens.
But this is one sure way to reduce the interest paid on your home loan and the time it takes to pay it off!
Now to look at what fortnightly repayments would look like for you.
Take a look by comparing the repayments on our repayment calculator. Enter all your numbers and see what you can do with your home loan. If you’d like to talk to an expert, book a free home loan appointment with us now.
Way to go learning something valuable that you can share with all those around you. You’re welcome!
This article provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Article by:
TEAM TMC
Financial Wellbeing Coaches and Mortgage Brokers
The Money Collective