Choosing the right mortgage payment frequency can make a significant difference to your finances over the life of your loan. In Australia, borrowers typically have three main options: weekly, fortnightly, or monthly payments. While there’s no single “best” frequency that works for everyone, understanding the advantages and disadvantages of each option can help you make the choice that aligns with your financial situation and goals.
How Different Payment Frequencies Work
Monthly Payments
- 12 payments per year
- Most traditional option
- Payments are calculated by dividing your annual repayment amount by 12
Fortnightly Payments
- 26 payments per year
- Each payment is half your monthly payment
- Results in one extra monthly payment per year (26 half-payments = 13 monthly payments)
Weekly Payments
- 52 payments per year
- Each payment is approximately one-quarter of your monthly payment
- Can result in slightly more being paid annually than monthly payments
The Financial Impact of Different Frequencies
Let’s look at a real-world example to illustrate the difference:
For a $500,000 mortgage at 5.5% interest over 30 years:
- Monthly payments: $2,839 per month ($34,068 annually)
- Total interest over loan term: $522,040
- Fortnightly payments: $1,420 per fortnight ($36,920 annually)
- Total interest over loan term: $482,785
- Time saved on loan: Approximately 4 years
- Interest savings: $39,255
- Weekly payments: $710 per week ($36,920 annually)
- Total interest over loan term: $480,562
- Time saved on loan: Approximately 4.5 years
- Interest savings: $41,478
Advantages of More Frequent Payments
Weekly and Fortnightly Payments
- Interest Savings: Since interest is calculated daily but charged monthly, making payments more frequently reduces your principal faster, resulting in less interest accruing.
- Faster Loan Repayment: The “extra payment” effect of fortnightly and weekly schedules means you’ll pay off your loan sooner—typically 4-5 years earlier on a 30-year loan.
- Budget Alignment: If you receive weekly or fortnightly pay, aligning your mortgage payments with your income can make budgeting easier.
- Psychological Benefit: Smaller, more frequent payments can feel more manageable than larger monthly sums.
Monthly Payments
- Simplicity: One payment per month makes tracking and budgeting straightforward.
- Lower Administrative Effort: Fewer transactions to monitor and manage.
- Better for Variable Income: If your income fluctuates or includes commissions, monthly payments might provide more flexibility.
What to Consider When Choosing
Your Income Schedule
- Match your payment frequency to when you get paid if possible
- Weekly or fortnightly payments work well for those with regular wages
- Monthly might be better for those with variable income
Your Financial Discipline
- More frequent payments require consistent cash flow management
- Consider direct debits to automate the process
Additional Repayment Capabilities
- Check if your lender allows extra repayments without penalties
- Some loans have more flexibility with certain payment frequencies
Offset Account Integration
- If you have an offset account, consider how payment frequency affects its benefits
- Daily interest calculations mean more frequent transfers into offset accounts can be beneficial
Making the Most of Your Choice
Whichever frequency you choose, consider these strategies to enhance your mortgage management:
- Make Extra Repayments: Even small additional payments can significantly reduce your loan term and interest costs.
- Use an Offset Account: Keep your savings in an offset account to reduce the interest calculated on your loan.
- Review Regularly: Reassess your payment strategy annually or when your financial situation changes.
- Check for Fees: Some lenders may charge fees for changing payment frequencies or making extra repayments.
The Verdict: Which Is Best?
For most Australian borrowers, fortnightly payments offer the best balance of:
- Significant interest savings
- Alignment with common pay cycles
- Manageable payment amounts
- Automatic “extra payment” effect
However, the best choice ultimately depends on your:
- Income pattern
- Financial goals
- Budget management style
- Lender’s specific terms
If you’re looking to minimize interest and pay off your loan faster, weekly or fortnightly payments are typically the way to go. If simplicity and predictability are your priorities, monthly payments might be more suitable.
Most importantly, speak with your lender or mortgage broker about the specific options available for your loan, as different products may have different terms and conditions regarding payment frequencies.
