Can I pay interest on IP loan weekly?

[rodimus]

I have bought a property in the name of my trust, and the loan is with Macquarie Bank. Currently I pay monthly around $1270. The loan amount is about $200,000 P&I started in 2008.

Can I ask if it is possible for me to ask to pay weekly?
I think it will save me a bit of money if I pay weekly.

 

[devank]

When you pay monthly you are paying 12 times in a year.
When you pay fortnightly you are paying 26 times (not 24). You are basically paying more mortgage. Mainly that is what contributes to reduction in length of your mortgage.
Moving to weekly is simply means you are paying 52 times which is 26 x2 which has not much benefit over fortnightly payment.

 

[Terry_w]

Interest on loans is only added monthly, but you can make payments daily if you like. A better option would be to use a 100% offset account as then you would get the same benefits by just having the money in the offset.

Also consider paying weekly on an investment may not be a good idea if you have non deductible debt. But since your trust owns this one it is different - not your money.

 

[jaycee]

When you pay monthly you are paying 12 times in a year.
When you pay fortnightly you are paying 26 times (not 24). You are basically paying more mortgage. Mainly that is what contributes to reduction in length of your mortgage.
Moving to weekly is simply means you are paying 52 times which is 26 x2 which has not much benefit over fortnightly payment.

If P&I though, and you get paid weekly, why not, however small the difference

 

[rodimus]

how does interest get calculated by the lenders?

Do they calculate the interest per day like a credit card debt and then charge the interest monthly?

My friend told me if I pay fortnightly I can reduce my homeloan many thousands more per year than compared with monthly payment, since the principle gets reduced faster. Is that true?

 

[Terryw]

Interst is calculated daily with most lenders. So paying daily will save u interst

 

[Peter_Tersteeg]

My friend told me if I pay fortnightly I can reduce my homeloan many thousands more per year than compared with monthly payment, since the principle gets reduced faster. Is that true?

Your friend is over-estimating a bit but if you're paying principal & interest, fortnightly or weekly payments do make a small difference.

Fortnighly payments are calculated by taking the monthly P&I payment and dividing it by two. The reason you get ahead with this method is because there are 26 fortnights in a year, not 24. Each year you effectively make one months extra payment. Whilst this does equate to 'thousands', some people are under the impression it'll reduce their home loan by 10 or more years.

Over a 30 year loan, this will save you about 3 years in repayments.

If you have an offset account and have your salary paid there, the effectiveness of forntighly payments is almost negligible because the balance in the offset acts like an extra repayment anyway. This is usually more effective.

For the most part, I suggest people match their payment cycle to their paypacket or budget cycle. It makes money management easer.



Here's the silver bullet for reducing your home loan quickly...

Make extra payments as often as possible.