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ISCOVER
Staff Reporter
Making fortnightly mortgage repayments won’t necessarily save borrowers money, new research has found.
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According to RateCity chief executive officer Damian Smith, out of the major four banks, the Commonwealth Bank of Australia’s method for calculating interest offered the best savings for fortnightly repayments.
“It’s possible to get big savings by paying your mortgage fortnightly rather than monthly – but it really depends on the lender,” Mr Smith said.
“It’s actually a pretty simple but profound difference – unless your lender credits you with 26 payments per year (as opposed to 24), then fortnightly payments don’t really matter. It’s the difference between genuine fortnightly payments (every 2 weeks) and twice-per-month payments.”
RateCity compared the mortgage repayment calculations of the major four banks – ANZ, Commonwealth Bank, National Australia Bank and Westpac – and found that the difference in savings caused by repayment frequency varied dramatically.
All four banks offer the option to make monthly, fortnightly or weekly mortgage repayments but each has different methods of crediting payments. The difference in savings was dependent on when each lender calculated interest and how they charge the repayments.
ANZ, NAB and Commonwealth Bank calculate fortnightly payments by dividing a monthly payment by two. However, NAB only debits 24 fortnightly payments per year, or two payments per month. By contrast, Commonwealth Bank and ANZ credit payments every two weeks, meaning a borrower makes 26 payments in a calendar year. As a result, CBA and ANZ customers get credit for two additional fortnightly payments every year.
