You should never use the repayment amount of your home loan to determine which loan offer is the best for you. Firstly (as we talked about in the past blog) it doesn’t include fees and charges so you could be paying more than you thought but also there is a big difference between paying weekly/fortnightly payments or paying ‘true’ weekly/fortnightly payments.
One can save you time and thousands off your Home loan and the other one can do absolutely nothing to help you.
So what is the difference between weekly/fortnightly payments and ‘true’ weekly and fortnightly payments? Let me use this case study as an example,
Sam is looking for a home loan with two different banks, she is looking to borrow $350 000.00 for the purchase and gets paid fortnightly so she would like to pay the loan back fortnightly too.
Bank ABC do fortnightly payments which means her estimated monthly repayments are $1 711.56 per month so she divides that by 2 (1711.56 / 2 = $855.78) and the repayment is $855.78
Bank XYZ do ‘true’ weekly and fortnightly payments so her estimated monthly repayments are $1 711.56 however they x this by 12 months of the year and / it by 26 fortnights (1711.56 x 12 = 20538.72 / 26 = $789.95) and the repayment is $789.95
As you can see if you are comparing loans based on the repayments then Bank XYZ looks better ($789.95 a fortnight compared to $855.78) however what you really need to know is not only is it exactly the same interest rate, loan term and loan amount but if Sam was to go with Bank ABC the extra repayments will mean she saves approximately $46 918.00 in interest over the life of the loan and pays her home loan back 4 years faster.
So as you can see there is a huge difference in weekly/fortnightly payments and more importantly you want to check with your bank which type of repayments they use so you know if you are shaving time and money off your loan or not.
If you want more information don’t hesitate to contact me, remember to subscribe to the mailing list for your free Home buying guide and other offers