If you're paying a mortgage, chances are you've felt like getting to the finish line is an almost insurmountable task.
How frequently you pay your home loan can affect how long it takes to pay it off, but there are tricks to getting it right.
We spoke with three finance experts for their advice on simple changes that can help you get ahead with your mortgage in the long run.
Should you pay monthly, fortnightly or weekly?
Interest on your mortgage is calculated daily, says Natasha Janssens, a financial educator and money coach from Canberra/Ngunnawal lands.
"So, the more often you're putting money in … the more you'll save on interest," she says.
Financial educator and author Nicole Pedersen-McKinnon, based on the Sunshine Coast/Kabi Kabi lands, recommends matching your home loan repayments with the frequency of your salary "if possible".
"So, if you're paid monthly, it kind of makes sense to stick to monthly," she says.
"If you're paid fortnightly, there are benefits to fortnightly, and if you get paid weekly then there are definitely benefits to paying weekly."
Kate McCallum, a financial adviser and author based on Darkinjung lands on the New South Wales Central Coast, says the behavioural benefits matter too.
"Fortnightly payments align with most pay cycles, making budgeting more straightforward," she says.
"There's also something satisfying about seeing your loan balance chip away more regularly — it feels like there is more visible progress."
How do you change monthly repayments?
Because there are 26 fortnights per year compared to 12 months, paying your home loan off fortnightly instead of monthly can put you a month ahead each year.
But before you phone your bank or log into internet banking to make the switch, Ms Pedersen-McKinnon says it's important to know how your bank calculates fortnightly repayments.
"You don't want to approach your lender and go, 'Hey, I'd rather match my pay cycle, can you please switch me to fortnightly?''' she says.
"Because [most lenders] calculate a fortnightly amount based on the mortgage date you're contracted to [not the number of fortnights in a year].
"And your ultimate interest bill will be that same huge maximum figure."
Let's say your annual mortgage repayments are $30,000. Ms Janssens says this is how it could impact you if you switch to fortnightly through your bank.
- Lenders these days mostly calculate your fortnightly repayments by dividing the annual repayment of $30,000 by 26 fortnights which equals $1,153 a fortnight
- What they used to do, and the key to getting ahead is $30,000 divided by 12 which equals $2,500 per month
- Then divide that by two, which equals $1,250
- $1,250 x 26 fortnight = $32,500
"Now you are paying $2,500 extra a year and therefore becoming debt-free quicker," she says.
Ms Pedersen-McKinnon recommends using this manual calculation yourself and paying as a direct debit.
"Then set up your direct debit and put that number in as the amount you want deducted to match that fortnightly pay cycle."
Every little bit extra can help you get ahead
Ms Pedersen-McKinnon says another simple idea to help you get ahead is to "round up your repayments".
"If there's like $5 short of a round figure throw that in, whatever it is that you think you can stretch to," she says.
"It's about figuring out if you can throw in $15 extra a fortnight, if you can throw in $55 extra a month.
"Whatever it is, even tiny amounts actually make a huge difference to the ultimate interest bill."
Ms Janssens says paying more than the minimum is recommended, as is regularly shopping for a lower interest rate.
But she warns people not to fall into the trap of refinancing and extending the loan term, which will cost more in the long run.
"Let's say you're three years into your mortgage and you go and refinance for another 30 years, if you stick to the minimum repayments you're now in for 33 years, instead of 30 years," she says.
"[You] can actually be shooting [yourself] in the foot taking that lower repayment because now you're just in that longer and it's going cost you more."
ASIC's Moneysmart website also has a range of ideas to help pay off your mortgage faster.
Things to consider if you have an offset account
Another thing to consider before switching your repayment frequency is whether or not you are using an offset account, says Ms McCallum.
"Switching from monthly to fortnightly repayments is one of those financial strategies that sounds simple enough," she says.
"But things change considerably when you add an offset into the mix."
She says if you're using an offset account, your offset balance is already reducing your daily interest charges, regardless of when you make your actual loan repayments.
"With an offset loan, timing matters less than balance," she says.
"Every dollar sitting in your offset is working as though you've already paid it off your mortgage — but with one important difference, you can still access that money."
She recommends using a home loan offset calculator, which most lenders have available online, to calculate how much you could save off your home loan interest and term.
This article contains general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
