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Paying loan repayments fortnightly VS monthly?

Discussion in 'Property Finance' started by Michaelidis, 22nd Sep, 2015.

  1. Michaelidis

    Michaelidis Member

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    Hey guys,
    Just wondering whether I should be paying my loan repayments fortnightly rather than monthly. Also when should I be receiving the rent.
    I have heard mixed opinions.
     
  2. legallyblonde

    legallyblonde Well-Known Member

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    I don't think it makes much of a difference... Just because no matter your option you can pay as regularly as you like (well you can pay more regularly)...

    I personally like monthly to keep it easy! Especially arranging settlement/refinancing to fall on the 1st of the month... keeps the accounting easy as I currently do my own taxes ect.
     
  3. legallyblonde

    legallyblonde Well-Known Member

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    The best advice is play around with the online calculators.
     
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    If it's an IO loan it doesn't make a difference - and a lot of lenders only allow monthly repayments.

    If it's P&I and you're aiming to pay off the loan as quickly as possible then commit to a higher than minimum repayment and/or keep placing extra cash into the loan/offset.

    Cheers

    Jamie
     
    House likes this.
  5. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Jamie has nailed it on the head - I would just add that ensure that all your income (salary + rental income + anything else) is deposited into your offset linked against your owner occupied property (if you have one). This is non tax deductible and its amazing how many people don't do this.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I don't know of any lenders that allow the interest repayments to be anything other than monthly.

    For principal and interest, you'll be slightly ahead with fortnightly repayments.

    When calculating the fortnightly minimum repayment amount, the banks first calculate the monthly amount and simply divide it by 2.

    There's 26 fortnights in a year but only 12 months. This means with fortnightly repayments you make the equivalent of an extra months repayment every year. This will mean if you only ever make minimum repayments you'll pay off the loan about 18 months ahead of a 30 year schedule.

    If you've got all your money going through an offset account, it's a moot point. The offset account negates any savings you'd otherwise make on any repayment schedule.

    I'd suggest the best schedule to choose is the one that matches your pay cycle. If you're paid fortnightly, set your loan payments to come out the day after you're paid. It can help with budgeting.
     
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  7. euro73

    euro73 Well-Known Member Business Member

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    Just be careful to make sure you actually pay every 14 days, rather than 2 x half monthly payments ... ;) Some banks are a little sneaky in how they set up "fortnightly" payments .
     
  8. House

    House Well-Known Member Premium Member

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    I was always under the impression it did for IO loans :rolleyes: But after playing around with some online calculators I can see this is not the case. Must have misinterpreted the 'put all your savings, wages etc into the offset as interest is calculated daily' as being for both IO and P&I.

    I know someone on SS or PI.com suggested leaving as much money as possible in the offset and paying all bills and expenses from a 55 day interest free credit card, repaying it in full on the 54th day. Sounded like a great idea and was going to do it for the IO loan... shattered!
     
  9. tobe

    tobe Well-Known Member

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    You certainly can still do this and it works for an interest only loan. You just can't pay it fortnightly, and it wouldn't make a diference if you could, cause you are only paying the interest, not the principal.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    As mentioned

    all loose cash in offset

    = paying daily

    ta
    rolf
     
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  11. chylld

    chylld Well-Known Member

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    Macq PPOR LOC package with no offset, IO fortnightly out of an IP offset which we try to keep as low as possible, so fortnightly makes for easier balance management than monthly
     
  12. Sonamic

    Sonamic Well-Known Member

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    Rent should be 1st of the month, once a month. And if your IP is IO set it up for the 3rd or 4th day to let Rent "clear". Once a month also. For a PPOR (if your intention is to pay it down and not make it an IP at a later date) IO with Offset and pump it. Or P&I paid weekly.
     
  13. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    You understood correctly. It's going to reduce the interest paid irrespective of whether the loan is IO or P&I.

    Cheers

    Jamie
     
  14. Waterboy

    Waterboy Well-Known Member

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    And it's amazing how some people put it in a savings account instead, which not only has lower interest but also taxable.