DeadVim

Hmmm, interesting, everyone I know gets paid fortnightly or weekly so I can't say I've considered the monthly implications. I do know more payments a year has to be a good thing

But ... if you are repaying fortnightly and syphoning off the cash monthly immediately after pay day (adjusted to 13 repayments a year, not 12) before you see it then it should all even out?

If you are paying fortnightly on a monthly basis then, yeh, there gonna be trouble at some point ...

Steve2009

I'm 99.99% per cent confident you could save yourself money by paying monthly. I stand (0.01%) ready to eat humble pie if I'm proven wrong though.

Unless that is that you have more than one source of income, or have short term commitments during the month which tie up the cash temporarily.

Steve2009

26 repayments?

DeadVim

Well, I have always gone by the kind of advice given here (Method 3 on the page):

http://www.financiallyfree.com.au/mo...ead of Monthly

------------------------

P&I Loan with Monthly repayments:

Repayment $1032 p/mth

Time To Repay Mortgage 25 years

Total Interest Payments to the Bank $159,547

Time Saved Nil

------------------------

P&I Loan with Fortnightly repayments:

Repayment $516 p/fortnight

Time To Repay Mortgage 20yrs 8mths

Total Interest Payments to the Bank $127,600

Time Saved 4yrs 4mths

------------------------

But, hell, if it saves money I will take a peice of that pie myself!

Yeh, the 12 vs 13 was for comparison's sake.

Steve2009

I'm not suggesting you listen to my musings but I would suggest you get professional advice. I think you may be mistaken in your assumptions and could potentially save yourself money.

asprilla

Maybe I can put an end to this confusion...

Steve2009 - from reading the posts above, I think you are under the impression that deadvim is paid monthly but is choosing to make repayments on a fortnightly basis. As you say, that is not ideal.

However I think that deadvim is/was paid fortnightly, hence the fortnightly repayments.

Steve2009

I see where the point of difference lies now. What you're talking about is actually overpaying versus what you would normally pay. You're actually costing yourself about $15 extra per year in interest by doing it this way but if it helps you to manage your finances better then it's not terribly expensive. You're putting about $1000 per year extra into your mortgage which comes out of your monthly cashflow.

DeadVim

Yeh, I have never considered the implications of a monthly salary as we have always had weekly or fortnightly pays.

Indeed, I should have made that clear, these are overpayments on our variable rate loan which we can make penalty-free. We both service the loan fortnightly and pay well over the minimum payment amount.

I shall live with the $15 interest if it maintains my sanity given my limited book-keeping skills.

Steve2009

FYI, I'm not sure why that website recommends such a convoluted method. If you're paid monthly then you be better off just making a single monthly payment with a similar amount of overpayment. It reduces the burden of administering 26 debits versus 12 and saves you the $15 in extra interest you are paying. It's as if that website is trying to hide the 8.3% extra per month coming out of your pay or something.

DeadVim

Good to have it clarified, if my new employer pays monthly I'll be looking into the implications and, as you say, seeking professional advice

Steve2009

I'm only now, despite this post realising that you're correct! At least it's cleared up from the point of view of a hypothetical monthly salary.

spottydog

With daily interest calculations if you get paid monthly and put all your pay in an offset account it doesn't matter how frequently your mortgage payment is actually taken since you are minimising your interest repayments anyway.

If you don't use an offset and want to pay off earlier then paying fornightly at half the monthly payment will pay off quicker (or weekly at quarter the monthly payment) will both pay off the debt quicker due to months not being 4 weeks long. A rough calculation, particularly in the early stages of a mortgage's life, is for every $1 you save you will save an additional $1 in interest not paid.

I do the same as Swerv-o, each payday all money gets put in the offset (actually a redraw for me) then wherever possible spending goes on the credit card which is paid off in full on the due date (so I get the saving interest benefit too).

With regard to credit card companies not liking people paying off in full, they don't actually mind that much as they also get a transaction fee for every item you put on the card from the merchant so still make plenty of money from you.

spottydog

If you use ING Directs calculator where they don't use fortnights as being half a month (so 12 months repayments is the same as 26 fortnights payments) for each $100k borrowed over 25 years you save $120 (total) at their current interest rates.

ING Direct have some useful tools where you can see the effect of overpaying too.

Steve2009

Yeah, it's no different than paying 8.5% extra on your monthly repayment though.

ABCDiamond

Too true, but they would still prefer it if you didn't pay it off in full