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Frequency of Repayments and Paying Off your Mortgage Faster

Updated: Aug 4, 2021

Making higher or more frequent payments on your mortgage will save you money and help you pay down your home loan faster.

Switch to fortnightly payments

If you are currently paying monthly, consider switching to fortnightly repayments. By paying half the monthly amount every two weeks you'll make the equivalent of an extra month's repayment each year (as each year has 26 fortnights).

Make extra payments

Extra repayments on your mortgage can cut your loan by years. On a typical 25-year principal and interest mortgage, most of your payments during the first five to eight years go towards paying off interest. So, anything extra you put in during that time will reduce the amount of interest you pay and shorten the life of your loan.

Make higher repayments

Another way to get ahead on your mortgage is to make repayments as if you had a loan with a higher rate of interest. The extra money will help to pay off your mortgage sooner. If you switch to a loan with a lower interest rate, keep making the same repayments you had at the higher rate and if interest rates drop, keep repaying your mortgage at the higher rate.

Consider an offset account

An offset account is a savings or transaction account linked to your mortgage. Your offset account balance reduces the amount you owe on your mortgage. This reduces the amount of interest you pay and helps you pay off your mortgage faster. For example, for a $500,000 mortgage, $20,000 in an offset account means you are only charged interest on $480,000. If your offset balance is always low (for example under $10,000), it may not be worth paying for this feature.

Avoid an interest-only loan

Paying both the principal and the interest is the best way to get your mortgage paid off faster.Most home loans are principal and interest loans. This means repayments reduce the principal (amount borrowed) and cover the interest for the period. With an interest-only loan, you only pay the interest on the amount you have borrowed. These loans are usually for a set period (for example, five years). Your principal does not reduce during the interest-only period. This means your debt is not going down and you will pay more interest over the term of the loan.

Frequency of Mortgage Repayments

As home loan interest is calculated daily; weekly and fortnightly repayments are better than monthly repayments to save you interest over the life of the loan. If a bank allows you to make fortnightly payment as half of your monthly payment you will pay one extra payment per year as 26 fortnights is the equivalent of 13 monthly payments. This repayment strategy will save you interest and reduce your loan term.

*Based on a home loan of $350,000 with a 25-year loan term, at the current average standard variable interest rate of 4.44% p.a.

Speak to your mortgage broker today about different ways to pay off your mortgage faster.

Kind Regards,

The Newstead Group Team

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