Many ways of saving money on your mortgage involve making extra repayments. However, there are also techniques that can save you in interest without having to pay extra. One simple technique is to pay the exact same amount overall, but break it up into smaller, more frequent repayments. It’s far from the biggest savings you can see, but it’s a simple one to put into practice right away.
The reason this works is that lenders calculate the interest on your loan daily, so, even though your repayments might be made on a monthly basis, your interest is accruing every day—even while you sleep. By changing your repayments to come out weekly or even fortnightly, you will also reduce the total amount that you pay on your loan as well as pay your loan off faster.
Example: the power of weekly repayments
If you were paying $2,000 a month on your home loan, you could break that up into weekly repayments. Instead of 12 lots of $2,000 payments each year, you would make 52 lots of $461.53 each. In both cases, you have made total repayments of $24,000 per year. However by paying weekly, you save $10,510 in interest and shorten the term of the loan by 200 days.
This is not to be confused with splitting your monthly repayment into 4, as there are 4.33 weeks in the average month. If you did that, you would actually pay extra each month — which is course going to save you even more. Some home loans only allow monthly repayments, so always make sure that this feature is available on your loan.