In short: On a $600,000 loan at 6.00% p.a. over 30 years, a true fortnightly repayment of $1,659 saves $621 over the life of the loan against monthly. That is nothing. But paying half the monthly amount, $1,799, every fortnight saves $148,872 and clears the loan in 24 years 6 months. The saving comes from paying more, not from the frequency.
- Monthly repayment$3,597 · $695,029 total interest
- True fortnightly (term-equivalent)$1,659 · $694,408 total interest
- True weekly (term-equivalent)$830 · $694,142 total interest
- Half the monthly amount, every fortnight$1,799 · $546,157 total interest
- Loan paid off24y 6m instead of 30y
- Extra paid each year$3,597
A true fortnightly repayment saves almost nothing on its own. The saving comes from paying HALF the monthly amount 26 times a year, which is 13 monthly payments instead of 12. Confirm your lender applies payments as received rather than holding them.
Saved by paying half the monthly amount every fortnight: $148,872
That is a general estimate on standard assumptions. Every lender applies its own expense benchmarks, income shading and policy, so the real figure moves from lender to lender. Gorakh spent years as a senior credit officer deciding exactly these questions. Send him the numbers above and he will tell you what is realistic and which lenders fit — at no cost to you for home loans.
- A former senior credit officer reads itGorakh assessed loan applications on the lender side before he became a broker.
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There is a widely repeated claim that switching to fortnightly repayments magically saves you a fortune. It is half true, and the missing half is the part that matters.
The two kinds of fortnightly repayment
They look the same on a direct debit form and they are completely different loans.
A true fortnightly repayment
The lender takes the monthly repayment and recalculates it so that 26 payments a year pay the loan off over exactly the same term. On our example loan that is $1,659 a fortnight. You pay $43,134 a year, essentially the same as the $43,164 you paid monthly. Total interest falls from $695,029 to $694,408. The $621 saving comes only from interest being charged on a marginally lower average balance because you pay slightly more often.
Half the monthly amount, every fortnight
You take the monthly repayment of $3,597, halve it to $1,799, and pay that 26 times a year. That is $46,774 a year, roughly $3,597 more than the monthly schedule. You have quietly made 13 monthly payments instead of 12, and the extra payment is pure principal.
That is where the $148,872 comes from. Not from the calendar. From the extra payment.
The numbers side by side
A $600,000 loan at 6.00% p.a. for illustration, over 30 years.
| Schedule | Each payment | Paid per year | Total interest | Loan paid off in |
|---|---|---|---|---|
| Monthly | $3,597 | $43,164 | $695,029 | 30 years |
| True fortnightly | $1,659 | $43,134 | $694,408 | 30 years |
| True weekly | $830 | $43,160 | $694,142 | 30 years |
| Half the monthly, every fortnight | $1,799 | $46,774 | $546,157 | 24 years 6 months |
The first three rows are the same loan wearing different clothes. The fourth row is a different strategy that happens to be delivered through a fortnightly direct debit.
Look at the arithmetic on that fourth row. Half of $3,597 is $1,799. Multiply by 26 and you get $46,774. The monthly schedule costs $3,597 times 12, which is $43,164. The difference is $3,610 a year, almost exactly one extra monthly payment. Applied entirely to principal from month one and compounded across the loan, that annual extra shortens the term by five and a half years and saves $148,872.
The trap: lenders that hold your payments
This is the question to ask before you change anything.
Some lenders credit each fortnightly payment to the loan on the day it arrives, so the balance drops 26 times a year and interest is calculated on the lower figure straight away. That is what the calculator models.
Other lenders hold fortnightly payments in a suspense or clearing arrangement and apply them to the loan as a single monthly amount. On those products the extra 13th payment may still land eventually, but the interest benefit of paying early is lost, and on some products the surplus is simply treated as being ahead on repayments rather than reducing the balance.
Ask the lender two direct questions before you switch:
- Is each payment applied to the loan balance on the day it is received?
- Is the amount above the minimum treated as an extra repayment that reduces principal, or as being in advance?
If you get vague answers, you are better off staying monthly and setting up a separate extra payment. The result is identical and it is unambiguous.
Weekly, and whether it is worth it
Weekly follows the same logic. A quarter of the monthly amount paid 52 times a year is $899, which is $46,748 a year, almost identical to the fortnightly-half strategy. The extra saving over paying half monthly each fortnight is small, in the order of a few hundred dollars over 30 years, because you are paying almost the same amount at almost the same time.
Choose the frequency that matches your pay cycle. If you are paid fortnightly, pay fortnightly, because money that sits in a transaction account for two weeks tends to find things to do. If you are paid monthly, stay monthly and increase the repayment by one twelfth instead. Both land in the same place.
Does this work on an interest-only loan?
Not in the same way. On an interest-only loan the extra money does not reduce a principal balance because you are not required to pay principal at all, and many interest-only products do not accept extra repayments during the interest-only period. The comparison between the two structures is set out in our interest-only versus principal and interest calculator.
On a fixed-rate loan, check the annual extra repayment cap. Paying 13 monthly payments' worth into a loan with a $10,000 annual cap on extras will breach the cap on a large balance and may trigger a break cost.
Other ways to get the same result
The fortnightly-half strategy is really just a disciplined extra repayment. If that framing suits you better, there are cleaner routes to the same destination.
- Extra repayments. Add a fixed amount to each monthly payment. Adding $300 a month to our example loan does roughly the same work as the fortnightly-half switch.
- Offset account. Park your pay in offset and every dollar reduces interest while it sits there, with full access. Our guide to offset versus redraw covers which suits your situation.
- A lump sum. A one-off payment early in the loan does a surprising amount of work.
- A lower rate. Before optimising the payment schedule, check the rate itself. If your rate has drifted above what is currently on offer, a refinance can save more than every timing trick combined. Compare properly using the loan comparison calculator and read our guide to comparison rates.
Frequently asked questions
Do fortnightly repayments really save money on a mortgage?
Only if you pay half the monthly amount each fortnight. That produces 26 half-payments a year, which is 13 monthly payments instead of 12, and the extra payment is what saves the money. A true fortnightly repayment that pays the loan off over the same term saves about $621 over 30 years on a $600,000 loan, which is a rounding error.
How much faster will fortnightly payments pay off my loan?
Paying half the monthly amount every fortnight on a $600,000 loan at 6.00% p.a. clears it in 24 years 6 months instead of 30 years, saving $148,872 in interest. The gain is larger on higher rates and longer remaining terms, and smaller if you are already well into the loan.
Is weekly better than fortnightly?
Marginally, and not by enough to matter. Paying a quarter of the monthly amount weekly puts almost the same total into the loan at almost the same time as the fortnightly-half strategy, so the extra interest saving is a few hundred dollars over the full term. Pick whichever matches your pay cycle, because consistency is worth more than the difference.
Will my lender let me switch repayment frequency?
Almost always, usually free and often in internet banking. The important part is not whether you can switch but how the lender processes the payments. Confirm that each payment reduces the balance on the day it is received and that anything above the minimum reduces principal rather than putting you in advance.
Should I switch frequency or just pay more each month?
They achieve the same thing, so choose on behaviour. If your pay arrives fortnightly, a fortnightly debit is easier to sustain and you never see the extra money. If you are paid monthly, adding one twelfth to your monthly repayment is simpler and avoids any question about how the lender applies payments.
Talk to GNT Finance
Payment timing is worth having right, but the rate and structure underneath it are worth more. Gorakh Timilsina will look at both, check what your current lender actually does with a fortnightly payment, and tell you whether a change is worth making. Our home-loan service is at no cost to you in most cases.
Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.