This Simple Hack Could Save You $160,000 on Your Home Loan

After crunching the numbers, we discovered that an individual with a
$600,000 loan could potentially save more than $160,000 in interest
over the loan's lifespan and shorten the repayment period by over five years simply by opting for fortnightly payments instead of monthly ones.

This saving strategy revolves around the principle that when mortgage payments are made monthly, the loan balance remains higher for most of the month, resulting in higher accrued interest.

Conversely, fortnightly payments lead to a gradual reduction in the loan balance throughout the month, consequently lowering the interest accumulated. This straightforward approach has the potential to save you substantial sums and expedite your loan payoff. However, it's crucial to implement it correctly to maximize its benefits.

Difference in monthly and fortnightly mortgage repayments for a $600k loan
Repayments $3,694 monthly $1,847 fortnightly
Total interest paid $729,949 $567,907
Time to repay loan 30 years 24 years 4 months
Variable P&I interest rate 6.25% 6.25%

are based on a $600,000 loan with a variable interest rate of 6.25%. The total interest paid assumes there are no changes in the cash rate. Fortnightly repayments were calculated by dividing the monthly repayment by 2.

To ensure the effectiveness of this strategy, it's important to inform your bank about your intention to split your monthly repayments into fortnightly instalments. Merely, transitioning to a fortnightly repayment schedule without specifying the desired amount could result in smaller payments, potentially undermining the intended benefits.

For instance, if your monthly instalment amounts to $3,694, you should aim to pay $1,847 every fortnight. This approach will result in an annual extra payment of $3,694, facilitating a reduction in both your principal and interest owed to the bank.

This method not only accelerates your repayment schedule but also entails slightly higher payments. While prioritizing additional mortgage payments may not be a primary concern for many Australian households, it's a consideration worth pondering for those with the financial capacity to do so.

Increasing your contributions now can significantly enhance your financial cushion, providing greater resilience in the event of unforeseen circumstances requiring financial support in the future.

Hi, I hope you enjoyed reading this article. If you would like my team and I to help you can save money on your loans and pay off debts faster,  please contact us  for a free no obligation meeting  - Chris Tolevsky