Home loans explained

Home loan guide / Home loans explained

# Monthly, fortnightly and weekly payments – which is better?

4 min read

In Australia, home lenders typically provide three common repayment frequencies to choose from: monthly, fortnightly, or weekly. But, is one better than the others? We explore.

While there are slight differences between repayment frequencies in terms of what you’ll pay over the life of your loan, it’s usually a good idea to choose a repayment frequency which will best suit your personal circumstances.

A certain repayment frequency may work better for your cashflow. If you earn income on a fortnightly basis, you might find it easiest to align your pay packet with fortnightly loan payments, so that you have timely access to funds to cover your obligations.

Let’s lay the ground rules that most lenders follow: monthly loan payments are made 12 times per year, fortnightly loan payments are made 26 times per year, and weekly loan payments are made 52 times per year.

If you’re an accountant by trade, you may have already spotted a discrepancy: there aren’t exactly 26 fortnights or 52 weeks in a year. There’s usually a day or two unaccounted for. Lenders are aware of this and usually calculate how many weeks you’ll need to make repayments by looking at your total loan term. If you take out a 30-year loan, you’ll be looking at about 1,565 weeks, 726 fortnights, or 365 months of repayments to make.

Based on this method, you’ll be paying 12, 26, or 52 equal payments in any given year throughout your loan term.

Now, we prefaced this section by noting that this is how most lenders calculate weekly, fortnightly and monthly repayments. That's because some lenders do it a little differently. Some lenders will calculate fortnightly repayments by taking 12 months and dividing by two, making 24 fortnights. Weekly repayments follow a similar format and are calculated by taking 12 months and dividing by two, and dividing by two again to make 48 weeks.

This calculation method typically means your fortnightly and weekly repayment amounts will be a little higher than the 26 fortnight/52 weekly repayment method.

Knowing this, it's good to check how repayments are calculated with your lender so you don't get caught out.

Understanding how interest is charged is important because it factors into how your loan payments are calculated, and could help you decide on the best repayment frequency for you.

When you apply for a home loan, you ask to borrow a certain sum of money, which is called the principal amount. In exchange for borrowing a sum of cash, you agree to repay that amount within a certain term of time, along with an extra amount called interest.

When you formally take out your loan, your lender will run the calculations on the interest they expect you to repay over the life of your loan.

On a $650k loan, for example, with an interest rate of 2.59%, they will charge you $285,569 in interest over a total 30-year loan term. This gives a grand total of $935,569 in home loan repayments. Don’t be alarmed if this sounds like a lot! Once divided equally into repayments spanning the whole loan term, it becomes much more manageable.

From here, the lender will divide the total home loan repayments based on the frequency you requested. Using the example above, a weekly frequency would usually mean you’ll need to make 1,565 repayments before your home loan is paid off (assuming no other changes to your loan occur during those 30 years).

Most lenders, including Tic:Toc, calculate interest daily. At precisely 5pm CST in our case. Typically, whatever amount happens to be owing at that exact point in time is used to re-run the entirety of your remaining repayment schedule. The balance of your offset account, if you have one, is also taken into account at this point. The same applies to a redraw facility if you make a deposit or withdrawal.

Therefore, if you’re paying your principal amount down more often, you’ll save on interest repayments over the life of your loan.

In other words: a weekly payment can help you pay slightly less interest over the life of your loan when compared to a fortnightly payment or monthly loan payments. A fortnightly or monthly repayment will pay down your principal amount less frequently, while the interest will still be calculated daily.

If you have an existing home loan and want to change the frequency of your repayments, just ask your lender. Some will be able to accommodate the change, while others may require that you pay a loan variation fee. At Tic:Toc, you can change your loan frequency for free! Just get in touch with us.

You can run these numbers by multiplying your monthly loan payment amount by the number of months left in your total loan term, and then dividing by the number of fortnights remaining in your loan term.

**For example:**

Monthly loan payments: $2,400

Remaining loan term: 25 years and 2 months

$2,400 * 302 = $724,800

$724,800 / 656 = fortnightly loan payments of $1,104

A good way to run this calculation is to multiply your monthly repayment amount by the number of months left in your total loan term. Then, divide by the number of weeks remaining in your loan term.

**For example:**

Monthly loan payments: $2,400

Remaining loan term: 25 years and 2 months

$2400 * 302 = $724,800

$724,800 / 1,312 = weekly loan payments of $552

It’s entirely up to you and what best suits your circumstances. However, because of the way interest is typically calculated, you may pay slightly less interest over the life of your loan if you choose fortnightly loan payments instead of monthly payments.

It’s based on you, boo. Choose an option which will best suit your personal circumstances. Weekly loan payments, however, typically result in slightly less interest being paid over the life of the loan when compared to monthly payments because of the way interest is calculated by banks and lenders.

You can usually save a little in interest by choosing a more frequent repayment option. However, you should consider which option – monthly, fortnightly, or weekly – will be most practical and manageable for your individual circumstances. If you’re unsure, we recommend seeking professional financial advice.

If you currently have a home loan and want to change your repayment frequency, ask your lender and discuss your options for changing over. If you’re looking for a home loan, browse Tic:Toc’s options here.

Want to know what your repayments could look like with Tic:Toc? Use our loan payment calculator to run the numbers and see how much you could save.

Bailey Underwood