Hi all, just wanna make sure I'm 100% right on this (math not my strongest subject). I got an 100% offset account linked to my mortgage, which I have significant amount of money saved in the offset account.
That being the case, it wouldn't matter if I pay my mortgage weekly or monthly correct? i.e. paying weekly won't equal to less interest compared to monthly repayment correct?
Thanks!
It will make a difference depending on how much you are paying off each year. Work out the total of each method as they may not be the same. Generally, a fortnightly payment will be better as there are 26 of those per year. Versus only 12 monthly payments. So if you divide the monthly payment by 2 and pay that every 2 week, you will pay more during the year and therefore will pay off the loan quicker.
Did you not read I have a 100% offset account linked to the mortgage?
See above, Archi definitely thought the same as me.
If interest is calculated daily on your mortgage of course it will make a difference.
Archi definitely thought the same as me
yes it will
I'm not sure that he is thinking the same as you.
I'm not thinking the same you @Droid11
lets make some assumptions
lets say you owe the bank $1mil. and you have a 100% offset account with $500K
you are paying principle + interest
you only have to pay interest on the $500K difference
the principle amount will be lower with every mortgage repayment the interest charge will be based on the difference you owe the bank and the amount in your offset.
you will be better off paying fortnightly rather than monthly
if you are paying interest only then nothing will change and because your principle amount doesn't change and the amount in your offset account doesn't change.
it will make more sense for all your income to go into the offset account and your fortnightly or monthly repayment deducted from that offset account.
@Archi: Well that's what I been doing anyway…but from what I can see, the weekly payments I'm now doing just sitting in the loan account anyway, so I assume it's not different.
No difference is all residual funds are still sitting in the offset.
amount of interest paid would be the "same" however as others have mentioned, the fortnightly payment (assuming it is 50% of monthly), and by making 26 payments in a year, you are reducing the time to pay off the overall loan
Technically saving interest, because the loan term is shorter?
ah..you got a long thread, so the conclusion is no difference weekly, fortnightly or monthly if all money sit in offset account yes?
Yes. But if you want to be 100% sure, you should ask your financial institution.
So my guess is no difference? Or does it depend on the bank too?
I'll try to make it very simple for you Droid11.
I am assuming that the amount in your offset account is not the same or larger than your loan amount owed.
Money sitting in your offset account reduces the amount of interest that is charged every day. It does not, however, reduce the principle that is still owing.
If for example you never made any repayments, the amount owing would continue to grow. The loan would never be paid off.
The only way to reduce the principle is to make repayments into the loan. The more you pay back each year, the quicker you reduce the principle and the quicker you pay off the loan. Hence saving you money.
So if you are paying weekly now, continue to do that. That is because 52x whatever you are paying should be more than 12x the monthly repayment.
I've verified this with my bank. Paying of weekly is the best option as you will be able to pay your loan 4-5 years quicker than initial 30 years period. Thus saving a huge amount of interest as well.
but do you have an offset account though? I know paying weekly is faster of course
yes, i have offset account.
The answer is quite simple (as some have pointed out):
If all your income (for example wages, rent, etc) is deposited into the 100% offset account as soon as it sent to you, then there is zero difference that is gained from making more frequent loan repayments. Why? The money in the 100% offset account is already being offset against the principal outstanding.
HOWEVER
If your income is being deposited to accounts other than the 100% offset account than a more frequent repayment period is definitely to your advantage as most lenders calculate your interest liability daily using the principal sum outstanding.
Hope this helps.
This question baffles people. You will always get a mixed response, I know how frustrating right! I work in a bank and my colleagues still don't agree on an answer :/
My view is:
Yes weekly payments are better than fortnightly as interest is calculated daily BUT if your repayments come from your offset account (and you constantly have a min balance of at least a monthly payment sitting in there), payment frequency makes ZERO difference .
100% offset means 100% offset. what do you not understand.
yes it will as interest is still calculated on a daily basis based on the difference in what is in your offset account and what you actually owe the bank .