Finance advice
Robert Stevens

Should I pay my loan fortnightly?

By Robert Stevens

If you want to pay off your mortgage faster, most lenders will let you in on the commonly used mechanism of making fortnightly payments. But is it the only option?

Blogger: Robert Stevens, co-director, Allied Investment Group

Realising fortnightly repayments allows you to slash up to tens of thousands of dollars from your mortgage payments, and cut the term of your loan by years. In terms of your disposable income, the difference isn’t much, but the advantage over the long term is.

How fortnightly repayments work:

Paying fortnightly allows you to squeeze in one extra repayment a year. For example, based on the monthly repayment of $2,000, after a year you will have paid $24,000 (12 x $2,000). To pay fortnightly, just split the monthly payment in half, making a fortnightly payment of $1,000. Given there are 26 fortnights in a year, you’ll pay $26,000 (26 x $1,000) or $2,000 more than if you were making repayments monthly, and therefore you’ll have less interest payable.

An important note that lenders don’t often mention is that if you do select fortnightly payments, they must be set up correctly. There are two ways this can be done: a true repayment option; and an inflated (or accelerated) repayment option. The inflated option is best as the interest cost is less, allowing you more of your repayment to go towards paying the principal off your loan, which means your mortgage is paid off sooner.

What about weekly repayments?

It’s the same outcome as fortnightly. Let’s assume your monthly payments are still $2,000. Divide this figure by 4 to get $500 per week. If you pay $500 per week, you’ll pay $26,000 by the end of the year (52 weeks x $500 = $26,000). So, based on those numbers you’ve still only made one additional monthly repayment by the end of the year. But you’re ahead for a different reason – the way your interest is charged.

Impact of small change/payment frequency:

If you can’t afford an extra monthly repayment a year, consider nominating the amount you want to pay with each repayment you make. This means topping up the minimum amount. Without stretching the budget too far, you can round up each payment to, say, the nearest $10 or $20. This is easier to remember and it counts as making an extra repayment. For example, if you have a mortgage of $300,000 with a 4.5 per cent interest rate, the monthly principal and interest repayment is $1,520.06 over a 30-year term. Use loose change to top this figure up by $20 to $1,540.06 each month to shave 10 months off the end of your mortgage term and save $7,741.57 in interest charges. Imagine how much more you could save and how much faster you’d repay your mortgage if you could round that number up even higher.

Use an offset account:

Another simple way to reduce the amount of interest you’re charged and pay off your mortgage faster is by linking your loan to a 100 per cent offset account. Every dollar you leave in your offset savings account actively reduces the amount of interest you pay on your mortgage. For example, $50,000 in a 100 per cent offset account on a home loan of $300,000 would see interest-only calculated on a balance of $250,000. At an interest rate of 4.5 per cent over 30 years, this could amount to a saving of $56,000 in interest, with six years cut from the home loan.

Mix it up and save:

Knowing different ways to reduce your mortgage provides the freedom to mix and match methods to suit your own budget. You can even put them all to good use and take advantage of the interest savings as you pay your home loan down faster.

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About the Blogger

Robert Stevens

Robert Stevens

Working over half his years in the finance and property industries, Robert Stevens is a certified practising accountant, financial planner and mortgage broker.

Starting as an Accountant in Adelaide, Robert then moved into financial services working for investment banks before becoming a co-founder of Allied Investment Group.

Robert loves helping people achieve their lifestyle goals and has helped hundreds of people tackle the complex world of investing and plan for comfortable retirement.

 

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  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
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  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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