Mortgage repayments: frequency and extra principal are different choices
This guide covers payment timing, annual repayment totals, extra principal and the lender terms that govern access and changes.
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- Extra repayments
- Permission and fees depend on the loan termsMoneySmart: pay off your mortgage faster
Payment timing and payment total
MoneySmart describes paying half the monthly amount each fortnight. This increases the annual total, rather than merely dividing an unchanged annual payment into smaller debits. MoneySmart repayment frequency (opens in a new tab).
A payment-frequency comparison therefore needs both the instalment amount and the total paid over the same period. MoneySmart repayment frequency (opens in a new tab).
Extra principal and loan conditions
Extra repayments reduce the loan balance. MoneySmart notes that a lender may restrict extra repayments or charge fees. MoneySmart extra repayments (opens in a new tab).
A calculator scenario cannot establish the additional payments permitted by a particular fixed or variable loan contract. MoneySmart extra repayments (opens in a new tab).
Redraw is conditional access
A redraw facility provides access to extra repayments already made. Access can be limited, charged for or delayed under the loan terms. MoneySmart redraw explanation (opens in a new tab).
An additional principal payment is therefore not a promise that the same money can be withdrawn immediately. MoneySmart redraw explanation (opens in a new tab).
Offset balances are held separately
An offset is a linked savings or transaction account. Its balance reduces the balance used for interest calculations. MoneySmart offset explanation (opens in a new tab).
Fees, interest rates and access rules affect its cost. This is different from paying money into the loan itself. MoneySmart offset explanation (opens in a new tab).
What this explanation leaves out
Scheduled interest-only payments cover interest without reducing the debt. Changing payment frequency does not itself change that repayment type. MoneySmart interest-only explanation (opens in a new tab).
This guide provides no lender schedule, savings estimate, refinancing recommendation or numerical worked example. A calculator scenario is not a loan contract.