A common piece of home loan advice in Australia is to "switch to fortnightly repayments" to pay the loan off years sooner. It can work, but only if the fortnightly amount is set the right way. Two quite different things are both called fortnightly repayments, and one of them saves a lot of interest while the other saves very little.
In this article you will learn:
- the difference between "half-monthly" accelerated fortnightly repayments and true fortnightly repayments
- why 26 half-payments add up to 13 monthly repayments a year
- a worked example on a $500,000 loan at 6% over 30 years, with the payoff time and interest for each method
- how to set this up with your lender and what to check first
Two ways to calculate a fortnightly repayment
Method 1: half the monthly repayment (accelerated)
You take your required monthly repayment, halve it, and pay that amount every fortnight. There are 52 weeks in a year, so there are 26 fortnights, not 24. Paying half the monthly amount 26 times means you pay the equivalent of 13 monthly repayments each year instead of 12.
That extra repayment each year goes straight to principal (after the interest for the period), so the loan balance falls faster and the loan finishes early. Most of the saving comes from this extra money, not from the fortnightly timing itself.
Method 2: true fortnightly repayment
Some lenders calculate a fortnightly repayment by amortizing the loan over 26 periods a year for the full term. That produces a fortnightly amount that is slightly less than half the monthly repayment. You pay a little more often, so interest has slightly less time to accrue between payments, but the total you pay each year is almost the same as with monthly repayments. The loan still finishes at about the original term.
When a lender or broker says fortnightly repayments will save you money, it is worth asking which of the two methods they mean.
Worked example: $500,000 at 6% over 30 years
This is an illustrative example. We assume a constant 6.00% rate for the full term and calculate interest per repayment period (6% ÷ 12 for monthly, 6% ÷ 26 for fortnightly), rounding interest to the cent each period. Real loans usually calculate interest daily and rates change, so treat the results as a guide.
Step 1: the monthly repayment
Using the standard amortization formula, M = P × r / (1 − (1 + r)^−n), with P = $500,000, r = 0.06 ÷ 12 = 0.005 and n = 360:
M = $2,997.75 per month (the unrounded value is $2,997.7526).
Step 2: the accelerated fortnightly repayment
Half of $2,997.75 is $1,498.875, which rounds to $1,498.88 per fortnight.
Step 3: the true fortnightly repayment
Using the same formula with r = 0.06 ÷ 26 and n = 30 × 26 = 780 gives $1,382.92 per fortnight.
Step 4: what you pay each year
| Method | Repayment | Payments per year | Paid per year |
|---|---|---|---|
| Monthly | $2,997.75 | 12 | $35,973.00 |
| Accelerated fortnightly (half monthly) | $1,498.88 | 26 | $38,970.88 |
| True fortnightly | $1,382.92 | 26 | $35,955.92 |
The accelerated method pays $2,997.88 more per year than monthly repayments, which is essentially one extra monthly repayment. The true fortnightly method pays slightly less per year than monthly.
Step 5: payoff time and total interest
| Method | Time to repay | Total interest (approx.) | Interest saved vs monthly |
|---|---|---|---|
| Monthly | 30 years | $579,193 | n/a |
| Accelerated fortnightly | 638 fortnights, about 24 years 6 months | $455,128 | about $124,065 |
| True fortnightly | 780 fortnights, 30 years | $578,667 | about $526 |
The accelerated method shortens the loan by roughly five and a half years and saves about $124,000 of interest in this example. The true fortnightly method saves around $500 over 30 years, because the extra payment frequency on its own makes only a small difference.
A check with daily interest. If we instead charge interest daily at 6% ÷ 365 for 14 days each fortnight, the accelerated method takes 636 fortnights (about 24 years 5 months) and total interest is about $451,802. The conclusion is the same: most of the benefit comes from paying the equivalent of a 13th monthly repayment each year.
Free toolHome Loan Repayment Calculator (Australia)Work out monthly, fortnightly or weekly home loan repayments in AUD, with interest-only periods and extra repayments.Why the extra repayment has such a large effect
The extra $2,997.88 a year may not feel like much against a $500,000 loan, but every dollar of it reduces principal that would otherwise attract interest for the rest of the term. Early in the loan, that avoided interest compounds over decades. Each year's extra payment also lowers the balance for every future period, so less of each subsequent repayment goes to interest and more to principal.
You can get almost the same result by staying on monthly repayments and adding one-twelfth of a monthly repayment each month: $2,997.75 ÷ 12 is about $249.81 extra per month. On the same assumptions, that clears the loan in 295 months (about 24 years 7 months) with total interest of about $456,417, within a few months and about $1,300 of the accelerated fortnightly result. The fortnightly method simply builds that extra in automatically, which some people find easier because it lines up with a fortnightly pay cycle.
When fortnightly repayments suit you
- You are paid fortnightly. Matching repayments to pay days can make budgeting simpler, and the half-monthly amount feels smaller than a single monthly repayment.
- You want an automatic habit. The 13th repayment happens without you having to remember to make extra payments.
- Your loan allows extra repayments without penalty. This is common on variable-rate loans but often restricted on fixed-rate loans.
When they may not help
- Your lender recalculates to true fortnightly. If you ask to switch to fortnightly and the lender sets the new repayment at the true fortnightly figure, you will save very little. Ask for the fortnightly amount to be set to half your monthly repayment, or pay the difference as an additional amount.
- Fixed-rate loans with extra repayment caps. Many fixed-rate loans limit how much extra you can repay each year without break costs. Check your contract before paying more.
- You have an offset account and variable cash flow. If you already keep surplus cash in an offset account, that money is reducing interest too. The comparison between paying extra and holding cash in offset is covered in our mortgage offset calculator.
- Cash flow is tight. In most years, two months contain three fortnightly debits. Make sure the extra outflow in those months will not push you into overdrawing an account or using a credit card.
How to set it up
- Find your current minimum monthly repayment on your latest statement or in your banking app.
- Ask your lender whether you can change to fortnightly repayments, and how the fortnightly amount will be calculated.
- If the lender offers a true fortnightly amount, ask to set a higher repayment equal to half your monthly repayment, or set up an extra direct debit for the difference.
- Choose a debit date just after your pay day to avoid dishonour fees.
- Check your first two or three statements to confirm the amount and that extra funds are reducing principal.
- Review the setup when your rate changes. Lenders usually recalculate the minimum repayment after a rate change, and you may need to update your fortnightly amount to keep paying half the new monthly figure.
Checklist before switching
- Confirm your loan type (variable, fixed or split) and any limits on extra repayments.
- Ask how the lender calculates fortnightly repayments: half monthly, or true fortnightly.
- Check for any fees for changing repayment frequency.
- Line up debit dates with your pay cycle.
- Make sure you still have an emergency buffer (in savings, an offset account or redraw).
- Model the result with your actual balance, rate and remaining term.
- Recheck after every rate change.
Weekly repayments
The same logic applies to weekly repayments. Paying a quarter of the monthly repayment every week gives 52 quarter-payments a year, which is again equivalent to 13 monthly repayments. A true weekly repayment calculated over 52 periods a year would save little on its own. The key question is always how much you pay per year, not how often.
Summary
- "Fortnightly repayments" can mean half your monthly repayment every fortnight (accelerated) or a repayment amortized over 26 periods a year (true fortnightly).
- Accelerated fortnightly repayments add up to 13 monthly repayments a year. In our illustrative $500,000 at 6% example, that cuts the term from 30 years to about 24 and a half years and saves about $124,000 in interest.
- True fortnightly repayments save only a few hundred dollars over the life of the same loan.
- You can get nearly the same benefit by adding about one-twelfth of a repayment each month.
- Check your lender's calculation method, extra repayment limits and fees before switching.
Run your own numbers in the home loan repayment calculator or model regular additional amounts in the extra repayment calculator. This article is general information, not financial advice. See our financial disclaimer.