Fortnightly vs monthly

The voting so far would suggest this issue is very clear cut, but maybe not...

Here's the Martin Hawes angle on fortnightly vs monthly mortgage repayments:

Steph

This question is not as straight forward as it sounds - there is a lot of
misunderstanding about it.

Fortnightly payments are good for many people because they end up paying a lot more on their mortgage than they were paying before. There is a great saving, but only because they are putting more money against the mortgage. If they pay the same amount of money as they had been, but pay fortnightly, there is only a very minor saving.

Here's what I mean: You're currently paying around $2050 per month. If you decided to pay fortnightly, you might choose to pay $1025 per fortnight. You would in this case make a great saving because you are paying a lot more on the mortgage – as there are more than 24 fortnights each year. When you pay $2050 per month, you are paying $24,600 per annum. But if you pay $1025 per fortnight you are paying $26,650 per annum. That extra $2,050 per annum that you are paying does indeed lead to greater savings, but only because you are paying more.

If you changed to fortnightly payments but still paid the same amount (i.e. your $2050 per month went to $946 per fortnight) you would only have a very small saving over the life of the mortgage - around $225.

So, start to pay fortnightly by all means, and if you pay half of the previous monthly payment, you will make a great saving. However, it could blow the budget - and your budget is already fairly tight.

Martin

Mmmm, not so black and white after all! How has it worked for others out there?

Steph