Reducing your mortgage: Fortnightly versus Monthly Repayments

It may seem like magic but this trick, made famous by 1980's Money Guru Noel Whittaker is simply a way of making an extra payment per year, without feeling the pain.

By paying fortnightly or weekly rather than monthly, you can save thousands of dollars in interest costs. If you pay monthly you make 12 payments per year, whereas if you pay fortnightly you make 13 monthly repayments because there are 26 fortnights in a year.

This extra and more frequent payment system results in huge savings.

For example on a $500,000 loan you could earn $564,644*, the equivalent of over half a million dollars, in interest savings from paying fortnightly. 

Effects of Fortnightly Repayments versus Monthly Repayments on a $500,000 Loan

Repayment frequency	Monthly	Fortnightly
Repayment amount	$4,023	$2,012
Total interest charge	$948,321	$646,236
Total interest saved	$302,085
Time saved:	8.1 years

*Based on a 30-year home loan at 9% interest rate, total interest savings of $302,085 grossed up for tax rate of 46.5%