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Is It Better To Make Mortgage Payments Fortnightly Or Monthly?

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Contributor:
Mary Holm
Mary Holm

Question:

Should I make fortnightly or monthly home loan payments?

Answer:

Mary Holm: Lenders sometimes claim that you save lots by paying half the monthly amount each fortnight.
But that's mainly because you will make 26 half payments a year, which totals 13 full payments instead of 12. In other words, you are simply paying off the loan faster, so of course you will pay less interest.

You could achieve the same result by boosting your monthly payments by one-twelfth.

This, however, ignores the real issue. It's best to match the frequency of your mortgage payments to the frequency of your salary or wage payments. Have the money transferred to your mortgage the day after you receive it.

There are two advantages to this: You're not tempted to spend the money on something else. And the money doesn't sit around in a bank account earning no or low interest, which is taxable.

Once the money is in the mortgage account, that's the equivalent of earning you the mortgage interest rate, free of tax!

Footnote: If you are paid weekly, the mortgage lender might not accept weekly mortgage payments. You should opt for the closest to weekly, which will probably be fortnightly payments.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.  

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