Mortgage - Offset vs Fortnightly Payments

• 

  vice on 08/03/2023 - 23:10

  +4

  It only makes a difference if you don’t have an offset. In the above situation it doesn’t matter if you choose fortnight vs monthly except for managing cash flow.

  • 

    Neoika on 08/03/2023 - 23:15

    Monthly marginally better. For fortnightly, interest charge kicks in early and eats away the money a tiny bit.

    If one makes voluntary/extra repayments, yearly option is even better (but not exists).

    • 

      avoidfullprice on 09/03/2023 - 07:54

      +2

      Does interest charge fortnightly? Banks ive come across charges interest monthly - either at anniversary of settlement date or end the month

      For example https://www.commbank.com.au/support.home-loan.home-loan-inte…

      • 

        Neoika on 09/03/2023 - 08:19

        OK, I never did fortnightly repayment. The idea is that do not let the interest charge appear early.

        Monthly is still marginally better as more flexible money to use over the whole period.

  • 

    teamfletch on 09/03/2023 - 06:36

    Thanks, this is where I was getting a bit confused.

    Obviously only the variable is offset.
    So I wasn’t sure if there was any benefit to paying the fixed portion more frequently, or if having that fortnightly repayment sitting there offsetting the variable portion for an extra two weeks was better.

• 

  garetz on 08/03/2023 - 23:15

  +2

  Interest is calculated daily, so it makes no difference unless the payments are coming out of an account that is not your offset.

  The real difference in making payments fortnight vs monthly is there is 12 months in a year, so you make 12 monthly payments.
  however there is 26 fortnights in a year, which means you make 1 more monthly payment per annum than you otherwise would.
  Over years you cut off about 2-3 years worth of payments on a 30 year loan.

  • 

    Neoika on 08/03/2023 - 23:21

    For fortnightly, you carry the balance being taken off a bit by the interest charge for the 2nd fortnight, while it is not for monthly. More frequent repayments may create compounding interest charge in bank's favor.

    It also has something to do with repayment habits, not a one size fitting all method.

  • 

    lgacb08 on 10/03/2023 - 12:32

    No it's not, otherwise people have been flocking to fortnightly payment since the beginning of time already. When banks calculate payment per cycle, they work out based on the hypothesis of fix interest and fixed repayments over that 30 year period and the required amount will depend on how often you pay, assuming you don't switch from monthly to fortnightly so the savings is nil if you follow their plan. The extra savings in making payments every 2 weeks is minimal even if you don't have offset, with current rate at 5.2% for every $2000 you put in one day earlier will only save you 28.5c a day or less than $4 a fortnight.
    If you making extra repayments due to the cycle difference (12 month vs 26 fortnight cycle) the savings is because you are being well-disciplined and make extra repayment than the amount required)

• 

  AngoraFish on 09/03/2023 - 01:07

  +1

  As Vice and Garetzs say, there is no difference between fortnightly and monthly if you are paying out of your offset account, and the amount in your offset doen't exceed the value of your variable loan, as it's effectively the same float of cash.

  If you are paying in from an external source (don't do that), fortnightly is marginally better because in the first full month you're paying down from the middle and not the end of the month, so you end up being one payment and half a month ahead. Over 30 years this works out to be worth a few hundred dollars.

  • 

    Donaldhump on 09/03/2023 - 12:56

    may as well pay weekly even better, will have $50 after 30 years

• 

  teamfletch on 09/03/2023 - 05:47

  Thanks everyone, sounds like I was on the right track, but either way there’s not going to be a massive difference.

  I did a comparison of both scenarios in month 1, and paying monthly was a tiny bit better. I just wanted to make sure there weren’t other variables I hadn’t taken into account.

  • 

    kawinuyo on 09/03/2023 - 08:29

    In your scenario just look at it as forced savings via paying fortnightly vs self control putting it in offset. We do weekly repayments and into offset as well personally.

• 

  Donaldhump on 09/03/2023 - 12:55

  if mortgage payment for the fixed comes from offset, as variable is higher rate better off paying fixed monthly.

  but its sfa tbh.

  as for the variable, it is irrelevant what frequency you pay.