Cheaper to have fortnightly or monthly payments?
- Thread starter goponcho
- Start date
Generally interest only loans require monthly payments.
If we were allowed, would it be cheaper to pay fortnightly?
If interest only, fortnightly is more expensive but only by the value of that fortnightly payment for 2 weeks.
Are you confusing the fortnightly = 13 months worth of payments a year? That only applies to P&I.
I can't think of a bank that does allow interest only repayments on anything other than monthly.
Technically it would be cheaper to go fortnightly as interest is paid in arrears and calculated daily. The difference would be tiny, but there would be a difference.
If you have an offset account against the loan, there would be no difference at all. The balance in the offset account would act against the accrued interest.
Fortnightly repayments are of greater benefit when making Principal & Interest repayments. To calculate fortnightly repayments in this scenario, the bank calculates the monthly repayment and divides it by 2. Technically there are 2.167 fortnights per month, so on fortnightly repayments you make an extra 2 fortnights repayments every year. This is where the fortnightly repayments gets you ahead, but it only works with P&I repayments.
Technically it would be cheaper to go fortnightly as interest is paid in arrears and calculated daily. The difference would be tiny, but there would be a difference.
If you have an offset account against the loan, there would be no difference at all. The balance in the offset account would act against the accrued interest.
Fortnightly repayments are of greater benefit when making Principal & Interest repayments. To calculate fortnightly repayments in this scenario, the bank calculates the monthly repayment and divides it by 2. Technically there are 2.167 fortnights per month, so on fortnightly repayments you make an extra 2 fortnights repayments every year. This is where the fortnightly repayments gets you ahead, but it only works with P&I repayments.
if you have all available cash in the offset you are "paying" DAILY anyway.........................
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Financial institutions charge interest monthly but it is calculated in most instituations on the daily balance outstanding.
It is often asked is it "cheaper" to make weekly or fortnighly payments.
Two issues explain why a borrower will be better off making weekly or fortnightly payments v's a person making a single monthly payment:
1. Payment frequency may result in overpayment (a redraw credit perhaps) v's making min montly payts.
ie : 52 weeks = 13 months (ie an extra month per year) = 26 (an extra FN a year) Fortnights.
Hence faster loan repaymnet by overpaying. Less interest etc.
2. Compounding. The daily loan balance which interest is based on will be lower for a more frequent loan payer v's a payment made montly on the due date.
NEVER allow a lender to debit a loan payment on the due date. You will lose out. Its the opposite to an interest offset benefit. A banking scam.
Leaving $$$ in the offset v's actual loan paymnet on due date provides no difference. The $$$ when credited to offset acts same as if loan is paid.
It is often asked is it "cheaper" to make weekly or fortnighly payments.
Two issues explain why a borrower will be better off making weekly or fortnightly payments v's a person making a single monthly payment:
1. Payment frequency may result in overpayment (a redraw credit perhaps) v's making min montly payts.
ie : 52 weeks = 13 months (ie an extra month per year) = 26 (an extra FN a year) Fortnights.
Hence faster loan repaymnet by overpaying. Less interest etc.
2. Compounding. The daily loan balance which interest is based on will be lower for a more frequent loan payer v's a payment made montly on the due date.
NEVER allow a lender to debit a loan payment on the due date. You will lose out. Its the opposite to an interest offset benefit. A banking scam.
Leaving $$$ in the offset v's actual loan paymnet on due date provides no difference. The $$$ when credited to offset acts same as if loan is paid.
Since it's interest-only, it will make no difference to the interest owed either way, since interest is calculated on the balance, and the balance doesn't change with interest-only.
Obviously, the more you have in the offset account the less you'll owe. If the bank takes it out fortnightly, they'll calculate the interest owed based on the balance in the offset account for the last fortnight. If they do it monthly, it will be exactly the same
