Hi guys,
I am confused and would like some clarification from this of you that know.
I have recently changed my PPOR loan repayments to weekly rather than monthly as I was told that simply by doing this I will save thousands over the life of my loan in interest paid. Reason for this is that I was told that interest is calculated daily so by paying weekly there has been less owing month than there would be if no repayment was made until the end of the month.
I whent on an online Morgage calculator and it showed that simply by changing to weekly repayments on a home loan of $350,000 you would salve $42,346 in interest over a 30 year loan.
How ever when I put the same information into a calculator from the bank I am currently with (ANZ) it showed nearly no difference.
So what is the truth behind repayment frequency and does it differ from bank to bank??
Hi Barlow,
The BIG savings were made where people would make half a monthly payment every fortnight. This effectively makes 26 payments per year instead of 24 (2 per month). Depending on each lenders calculator, the story might change.Like, if you were to make weekly payments, would you pay 1/4 of a monthly payment each week? Or would the Bank give you a lesser amount that would satisfy their requirement (52 payments yearly being just the right amount to equal 12 monthly payments). The first way, you would make 52 payments where 48 were enough – the difference is what then comes off the principal amount owing.
Setup an Offset account instead, and don’t worry about all of that other stuff. ;)
Benny
It’s all just silly trickery – in reality they’re saying if you pay more than necessary, you’ll save interest.
The same can be done for any repayment frequency. There is a marginal benefit in paying weekly in that interest is accrued daily and so you’ll be accruing less before the next payment, but we’re talking savings in the range of cents per week.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Cheers guys,
I checked and basically what they have done is Worked out what my repayments where over a year and divided that figure into 52 weeks so still pay the exact same amount over the year.
I wish I could have an offset account, how ever until the fixed rate of my IO portion of my loan is under 12 months remaining I can’t have an offset account attached 😢
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