Monthly vs Fortnightly Loan Repayments: What Really Saves You Money?

No-one enjoys paying interest, so it’s natural to look for ways to minimise it over the life of your loan. A common question I hear is: Should I make monthly or fortnightly repayments?

A recent client was adamant about fortnightly repayments, having heard repeatedly that that would save interest. Let’s break it down with a simple example.

The Numbers

• Loan amount: $500,000

• Interest rate: 5.5%

• Total annual repayments: $36,000

• The results:

  • Monthly repayments: Loan paid off in the 4th month of the 27th year.

  • Fortnightly repayments: Loan paid off in the 8th fortnight of the 27th year.

  • Difference: About $1,000 less interest with fortnightly repayments.

When you’ve repaid $946,000 over nearly three decades, that $1,000 difference isn’t exactly game-changing.

The Offset Account Effect

Now let’s add an offset account into the mix. Same loan, same monthly repayments, and now with $30,000 of everyday and rainy-day funds sitting in the offset account as a buffer.

• The new results:

  • Loan paid off in 24 years

  • Total repayments: $860,000

  • Interest saved: $86,000

That’s a dramatic difference. And importantly, you don’t lose access to your funds - they remain available in the offset account if needed.

Key Takeaways

• Fortnightly vs monthly repayments: The difference is marginal.

• Offset accounts or lump sums: These deliver far greater savings by reducing the balance on which interest is calculated daily.

• Flexibility matters: Many people prefer offset accounts because they can access funds while still reducing interest.

Final Thought

Everyone’s circumstances are unique, and the right strategy depends on your financial situation. But one principle holds true: putting additional funds towards your loan, (either via an offset account or extra repayments) can save you tens of thousands in interest.