How to Cut Years (and Dollars) Off Your Home Loan with this One Simple Step

The average Australian has a home loan of $388,100* which means the average Aussie also pays hundreds of thousands of dollars in interest too.  Wouldn’t you want to avoid paying maximum interest? 

Did you know by simply changing your payments from monthly to fortnightly you could shave years off your loan and save thousands in interest. Wouldn’t you want to avoid paying maximum interest? Did you know by simply changing your payments from monthly to fortnightly you could shave years off your loan and save thousands in interest.

Fortnightly vs Monthly Scenario

Let’s keep it simple.

If you pay monthly, you make 12 payments a year.

If you pay fortnightly, you make 26 payments a year.

When you make 26 fortnightly payments per year that are half your monthly repayment, you are paying more money than you would if you just made 12 monthly repayments per year.

For the average Aussie it can shave over 3 years and 5 months off your loan and could save between $35,000 to $40,000 in interest paid. Of course, this is dependent on your loan type, term and repayment agreement.

Here’s a worked example from Canstar.

Case Study

John and Jane are paying $1,934/month on a home loan of $350,000 at the current average standard variable interest rates on our database (4.44% p.a.), with the average ongoing fees on our database($96/year).

If they switch to fortnightly payments and halve their repayment amount, they will end up paying off more on their loan by the end of the year, which means they will have paid less interest and actually saved money.

Repayment Frequency	Monthly	Fortnightly	Weekly
Required Repayments Per Year	$1,934 x 12	$967 x 26	$483.50 x 52
Total Paid Per Year	$23,208	$25,142	$25,142
Extra Paid Per Year	n/a	$1,934	$1,934
Total Interest Payable Over 25 Year Loan Term	$230,054	$195,624	$195,391
Interest Saved Over 25 Years	n/a	$34,430	$34,663
Time Saved By Repaying Loan Early	n/a	3 years	3 years
Source: www.canstar.com.au 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.

You can take it a step further since interest is calculated daily. The more frequent payments you make, the more interest you can save.

How do you switch from monthly to weekly repayments?

Most banks will allow you to pay weekly, fortnightly or monthly, simply call your bank or pop into your local branch, it usually only takes a few minutes to swap over. Some types of loans will let you do it online as well. Just check they don’t have any fees if you make repayments more frequently.

At the end of the day, pay more than the minimum requirements on your mortgage whenever you can. The faster you pay off your loan the less interest you pay.

Try this easy Repayment Calculator from Bank of Queensland and see how it can help you.

* For the purposes of this article we are assuming an average loan is $388,100 for 25 years at a variable rate of 5.25% as outlined on Realestate.com.au.