Why should you consider paying your mortgage every two weeks?

When you take out a mortgage, you're essentially borrowing a sum of money (also called the principal) from a lender. This money needs to be paid back over a set period – also called the loan term, which could go up to 30 years. Your mortgage payments during this time can be scheduled monthly, fortnightly, or weekly. 

While most people tend to opt for monthly repayments, there's usually flexibility to change the repayment frequency during the loan term.

When it comes to the frequency of your home loan repayments, there are three main options to choose from: monthly, fortnightly, and weekly. Monthly repayments are generally the most common but may not be the most cost-effective for everyone. You may find that in some instances, making repayments more often can make a big difference to your interest cost. In addition, more frequent repayments can also help you pay off the home loan earlier.

For example, if you opt to pay your mortgage loan every two weeks, you can effectively end up paying for an additional month in a year. This happens because there are 26 fortnights in a year, which is equivalent to 13 monthly instalments. This means that paying the mortgage every two weeks can help you settle the home loan much earlier. 

Note that not every home loan lender calculates its fortnightly repayments in this way, so it’s best to double check with the lender before you appy. 

To know the exact amount you'll need to repay every fortnight, you can use an online mortgage calculator. Simply enter your loan amount, interest rate, payment frequency, loan type, and the loan term. 

To understand how you could benefit from more frequent repayments, take this second example. Consider a hypothetical $750,000 loan at 5 per cent interest with a 30-year term. Here's what your monthly repayments and interest charges are going to look like at different repayment frequencies: 

The table shows how fortnightly and weekly repayments could help you save money on interest and pay off the loan faster. But keep in mind that not every lender will calculate home loan repayments similarly, and you should also check if you'll be charged additional fees for paying the mortgage fortnightly or weekly.

While frequent repayments could help save money in interest charges, paying more than once a month may not suit everybody's budget. Make sure to consider your financial situation before changing the frequency of your repayments to avoid falling behind on your mortgage.

You should be able to change the repayment frequency of your mortgage even if you've been paying monthly until now. If your repayment is made by direct debit, contact your lender and ask for assistance to change the frequency.

You may also be able to switch to another repayment cycle by logging into your loan account online. If you're comfortable paying some extra repayments along with the fortnightly repayments, then you may find that you would save a significant amount on interest over the term of the loan.

Making frequent payments on your home loan may be helpful, but it's not the right solution for everyone. Here are a few things to consider before you decide to change the frequency of your home loan:

How your lender calculates fortnightly or weekly repayments

Most lenders calculate your fortnightly repayments by dividing your monthly repayment in half. This can help you repay your loan faster by squeezing in an additional repayment every year. However, it's important to note that not all lenders calculate fortnightly repayments in the same manner.  

Some lenders may calculate your fortnightly repayments based on your annual dues, which may be of little use, as you're only dividing your yearly repayment into 26 fortnights instead of 12 months. Remember to check with your lender how they calculate your repayments and whether it'll help you pay off your loan faster. It's also worth checking if you need to pay anything extra to make fortnightly or weekly repayments than paying monthly. 

Your budget

Making frequent mortgage repayments could help you save money in the long run. But have you considered whether you can afford to make two payments in a month? Your answer may depend on how frequently you get paid and when your other debts fall due throughout the month. It may be convenient for some individuals to schedule their repayments closer to their payday to avoid overspending.  

Paying fortnightly or weekly could also see you spending more each month than if you were paying monthly. Therefore, before committing to a more frequent repayment schedule, remember to check if there's enough room in your budget to accommodate the extra repayments.