Hi, my wife and I have committed to paying an additional $300.00 a week off our home loan this year. Are we better to pay $300 every Monday or set up a direct debit for the 1st of each month for $1200?

Hi Craig,

The answer is that is is definitely better to make regular payments more often. It reduces the principal amount when you make the payment every Monday, therefore there is less interest calculated on the outstanding principal for the rest of the month.

As well as that you will be paying back more principal; $300 x 52 = $15,600 compared to $1,200 x 12 =$14,400.

Also good to review your loan regularly to make sure that it is at a competitive interest rate.

Thank you Mark.

Hi Craig,

As interest is calculated daily but charged monthly, you are definitely better off making regular payments, ie on a weekly basis.

Cheers,

Michael Budge
Director
Bayside Finance Group

Hi Craig,

$300 a week is more than $1,200 per month, so clearly $300 per week is going to be better.

However, if you were calculating on a like for like (ie. $300/week or $1,300/month), then it is best to have the extra repayment set at the frequency at which you get paid, and for the payment to be made as soon as possible after you get paid.

Ie. if you get paid monthly at the middle of the month, you are best off paying as much as you can as soon after you get paid. Leaving money in your bank account (not paid off the mortgage) for 1, 2, and 3 weeks to be making weekly repayments throughout the month, doesn't make sense. You are best off having that money paid off your mortgage as soon as you get paid.

The general notion of 'always just pay weekly as you end up paying less interest' is wrong. If you are paid weekly, then yes, make the extra repayment weekly (as soon as you are paid each week), but if you are paid monthly, don't leave money sitting there not offsetting the mortgage throughout the month to drip it in on a weekly basis, you are best off paying it into the mortgage as soon as you are paid.

The myth of 'weekly is always best' is because the loan repayment calculations aren't done correctly understanding payments at the start of a period and end of a period and tying that into the frequency in which you are paid. But general common sense should tell you that having the money offsetting the mortgage as soon as you are paid should tell you what's best. It dumbfounds me that so many mortgage brokers don't understand this.

I hope that helps.

Cheers

Glenn

Hi Craig,
Congratulations on making the decision to attack your mortgage this year!
These guys are all correct that the sooner you get money into your loan, the more interest you will save. Glenn’s advice is best, if you get paid monthly pay as much into the loan the next day as you can (even if you redraw some of it later in the month) or utilise an Offset account and hold all of your spare cash in the Offset at all times.
You haven’t mentioned whether you have spoken to a broker or a financial planner about your strategy for making the move? If you have $300 plus per week spare, you may have many more options that you could consider.
If you are interested in a review of your mortgages and/or an introduction to a financial planner please feel free to give me a call or visit our website
Scott Howell
mobilelender.com.au
0435.474.498

Hi Craig,

When it comes making extra repayments, just make it simple and work it into however you manage your family budget.

If you guys think about things in weekly amounts, do weekly payments.

Alternatively if your bills are done on a monthly basis, I would set up the payment on the first of the month.

Whichever option you choose though, set it up as an auto debit so it's set and forget.

Kind regards,

Tim Russell
Multipart Finance
0400 530 868
tim@multipartfinance.com.au