Week 4, Question 1
Hi ho, hi ho, it’s off to work I go...
Well, not just yet but that’s what your votes have told us should happen.
Matt’s pleased he can keep his weekends off and to be honest I am looking forward to keeping my hand in at work. We’re both a bit apprehensive about putting Caleb into child care. But it’s only for one day a week, and the money will make a big difference.
In fact, with the savings we’ve made over the last few weeks through getting rid of Matt’s credit card debt, his bought lunches, my gym membership, and now the prospect of extra, regular income, things are definitely looking up.
Still a way to go, but we’re now well on our way to getting things sorted.
So next on the agenda (has it ever been off it?) is the mortgage. We’re still mulling over whether to go to a broker or just talk to our bank, but whichever way we go, one thing we’re going to have to decide is whether to change the frequency of our payments.
Matt gets paid monthly, so we thought it made sense to have monthly payments. But it seems everyone these days pays their mortgage fortnightly, so maybe that’s the way we should go? And if we do pay fortnightly, should it just be half of what we pay each month? Or less? Or more?
Steph
posted by sortme @ 9:49 AM
5 comments
5 Comments:
Pay your mortgage fortnightly
I have said it in a previous post, by repaying your mortgage fortnightly you will save heaps of money in the long run, and wipe years off your mortgage!
You should aim to pay 50% of your monthly repayment (if you can manage a bit more - go 4 it).
An mathematical example
…of how much more you will repay a year paying fortnightly, over paying monthly, using 8%pa, 30 year term, $211K mortgage:
Monthly repayment of $1,548.24 (approx) x 12 repayments = $18,578.88
Fortnightly repayment of $774.12 (approx) x 26 repayments = $20,127.12
The difference being one mortgage repayment! (without any effort at all really!).
Your minimum fortnightly repayment should be the monthly repayment divided by 26, making it $714.27, so by paying 50% your monthly repayment, you are effectively paying an extra $59.85 each fortnight, which, at the end of the day will wipe approximately 7 years off your mortgage (& save you approximately $97,600 in interest!!).
However, in saying that, most people refinance their mortgages every 5 years or so, and top up, withdraw their redraw (funds that have been overpaid), extend their mortgages and not to mention the fluctuating interest rates– so although the figures look really good when you look at how much you save in interest costs, in this mock example, most people don’t really save that much in the long run by paying fortnightly.
Up to you, I say change to fortnightly repayments if you can handle it!
Again, speak to your bank (or broker), who could explain this further.
If he gets paid monthly then the "easiest" option is to have your mortgage paid monthly straight out of his wages so you don't have to worry about overspending & not having the mortgage money. Why make life hard for yourself??
And see a broker about your mortgage. It is their profession to get the very best deal and they can look at all the different bank options to suit your needs.
Paying fortnightly helps reduce your mortgage but only if you divide the monthly payment in half and then pay this fortnightly. This way you are paying the same as 13 monthly payments a year instead of 12 as there are 26 fortnights in a year not 24. You hardly notice the difference in your budget but it reduces the interest you pay, especially on a large mortgage. Good luck.
Paying fortnightly helps reduce your mortgage but only if you divide the monthly payment in half and then pay this fortnightly. This way you are paying the same as 13 monthly payments a year instead of 12 as there are 26 fortnights in a year not 24. You hardly notice the difference in your budget but it reduces the interest you pay, especially on a large mortgage. Good luck.
Not sure where martin hawes gets his figures, from, but i wouldn't trust his advice as far as i could spit anyway, but making more regular payments on your mortgage, your going to save more than $255, ideally you want to talk to your bank about paying weekly, the faster you pay those interest bits the quicker it will drop. did you know you pay mainly interest on your loan for the first 8 years, and a std 100k mortgage will atrract nearly 3 time the interest, over a 25 year span.
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