squeezzii

I caught the end of a money report on tv today and the guy said that we should all be paying our mortgages fortnightly, can anyone explain why that is?

DeadVim

Because lenders are uniformly bastards and default payments to monthly ... if you pay fortnightly then there are huge savings to be had in interest ... it was one of the first things I learnt (when I was working for a bank) and is my single biggest money saving tip.

ALSO pick a loan with a penalty-free extra repayment option and aim to pay it all off as much as you can above the minimum ... direct debit as soon after you get paid and you won't miss it.

IF the loan also has cashback then it's a no-brainer where any 'exra' cash goes.

Find a repayments calculator and see the savings mount up ...
http://www.suncorpbank.com.au/home-loans/calculators

shears

something to do with reducing the principal you owe faster, thereby reducing the interest. You can do it on a mortgage calculator, I think it's the one on the realestate website, put in your frequency of repayments (weekly, fortnightly etc) and a graph shows the amount of interest and gives the total over the life of the loan - definitely food for thought! I'm sure one of our resident experts will be on to blind us with science soon

paularn

I used to pay our mortgage fortnightly when I was in Canada. Over the 12 months you are making an extra month's mortgage payment, because fortnightly is 26 payments. Thus, paying your mortgage off faster, saving interest.

DeadVim

Yup, all of that

Just check it in a calculator and see the magic of Compound Interest work in your favour.

Don't give 'em a cent more than you have to ...

DeadVim

Damn I wish I could phrase it as simply as that, that's what being on the cask wine after a ***tard day at work will do ...

BadgeIsBack

I don't think anyone pays their mortgage monthly any more. In this respect, Australia seemed to be ahead of the UK until quite recently - obviously the UK got onto it too so don't moisten that stamp on the hatemail just yet... The concept of a 'current account' mortgage in the Uk was still quite new c.2000 known variously here as offsets, you name it...

comet555

If you could pay weekly that would be even better. We pay ours weekly and to speed things up even further we actually over pay it by about 30%. All this comes out automatically from our account. This way we pay our mortgage off years sooner, save a LOT of money and it also gives us a large buffer in case interest rates go much, much higher.

I just had a peek at our bank statement. It says we have 28 years left on our loan and if left to the bank that's when we'd pay it off. However with our payments we're due to pay it off in 15 years. Which means 13 years earlier! Using the calculator posted in the link above that will save us $92,000 over the course of our mortgage. We also throw in lump sums as well whenever we get chunks of money (taxes, bonuses, etc).

We've been doing this ever since we bought our first house about 6 years ago. Just remember the fast you pay down your principal the more money you save.

I should add the offset account is also a great way to save money. Totally recommend it to everyone.

ozzieeagle

You can actually pay the following of daily if you wish.... Homeside peak equity Mortgage, It's basically my current account.

https://www.nabbroker.com.au/HSL/PUB...side/Rates.asp

comet555

I imagine daily would be pretty quick, a lot harder to find one of those though. But it appears as though they're out there

ozzieeagle

Very dangerous for spenders, can cause arguments Need a lot of restraint. Great for feeling free though.

galba

We've done this for the last 14 years with the Clydesdale Bank in the UK. We overpaid as well and saw the mortgage drop very, very quickly. It was a 25 year mortgage but paid off in 11 years.

We've now got a tracker on another UK property - 0.69% over the base rate for the life of the mortgage We are paying fortnightly and overpaying too - hopefully should be paid off in 8 years

www.moneysavingexpert.com has a very interesting forum called Mortgage Free Wanabee (MFW) - very inspiring.

EvannTel

Agree with everything everyone has said but with one caveat....

If you have a 100% offset account, it makes no difference. You're just moving money from one pot to another.

Also if you do have an offset account, thats where you're credit card is your friend. Pay for everything you can on credit card and pay it all off at the last minute. This keeps the maximum balance in your offset account and thereby reduces you're interest charges.

fish.01

As some of you early payers might be interested in this case study: http://www.whittakermacnaught.com.au...d=14&Itemid=35

louie

Well, yes and no. In the UK, the vast majority of people are paid monthly, so it's no surprise that they pay their mortgages monthly, usually shortly after they have been paid. If we were paid fortnightly, we may also pay our mortgages fortnightly.

As for offset/current account mortgages, yes Australia was way ahead of us. However, at least in the UK, it's not necessarily a no brainer that an offset mortgage is better, because generally the rates of interest charged are higher than can be obtained by getting a separate mortgage and that can outweigh the interest saved by offsetting savings against mortgage interest.

In my own case, I am actually significantly better off not repaying my mortgage, because the interest rates I am getting charged are less than I earn on my savings, even after paying tax on the savings. I'm fairly unusual though in that I get tax relief on my mortgage interest. Mind you, my heart feels it would be nice to see the balance go down even though my head says that's not the best course of action....