April 16, 2013
How your lender calculates loan repayments can impact your repayment strategy
Mortgage holders are often told that making more frequent repayments will help to repay a home loan sooner. However, the time it takes you to pay back the loan can ultimately come down to how your lender calculates the repayments, according to Mortgage Choice in North Brisbane.
While most lenders offer the option to make more frequent repayments on principal and interest home loans by way of weekly or fortnightly instalments, there are different ways in which lenders calculate loan repayments. It is worth noting that some methods are more beneficial than others.
Local Mortgage Choice mortgage broker, Melissa Jackson said, “It is possible for borrowers to make big savings on their home loan by making weekly or fortnightly rather than monthly loan repayments, but it really comes down to the way in which their lender calculates the repayment amount.”
Melissa explained that some lenders calculate weekly loan repayments by dividing the annual repayment amount (12 x monthly repayments) by 52 weeks, which is often referred to as ‘true’ weekly repayments. The same principle applies to ‘true’ fortnightly repayments, whereby the annual repayment amount is divided by 26 fortnights.
“While making ‘true’ weekly or fortnightly repayments will help to pay part of the loan principal off sooner each month and allows you to save on the interest calculated on the loan, the rewards will be minimal as borrowers won’t be paying any extra off the principal loan amount when compared to monthly loan repayments,” said Melissa.
“Other lenders use a simpler method of calculating weekly or fortnightly repayments that may be more beneficial to borrowers who budget accordingly.
“That is, lenders calculate weekly or fortnightly repayments by dividing the monthly repayment by four to calculate weekly repayments or by two to calculate fortnightly repayments.
“This repayment method can have a greater impact on your repayment strategy as not only are you paying more frequently, due to the varying length of months, it mean you make the equivalent of one extra monthly repayment each year.
“Keep in mind that this method will see borrowers making more than two repayments during some months of the year. For this reason, it is very important to budget accordingly and to consider nominating your repayment dates to suit your pay cycle.
“Also note that not all lenders offer this repayment method, so it is a good idea to ask your lender or mortgage broker, such as myself, for details on how the repayments are calculated before committing to the loan.”
Melissa concluded by encouraging borrowers to make savings on their home loan when possible.
“Ultimately, to repay a home loan sooner, borrowers should be aiming to pay extra into the loan or offset account. Simply rounding up your weekly, fortnightly or monthly repayments to the nearest whole dollar could see you get home sooner, so to speak,” said Melissa.
For further information, call 0405 315 227, or log onto www.mortgagechoice.com.au/melissa.jackson.
For further information or to arrange an interview, please contact:
0405 315 227
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the advice, consider its appropriateness to your circumstances.
About Mortgage Choice
Mortgage Choice has sourced a home loan for well over 350,000 people since 1992. It works with all manner of property finance borrowers via hundreds of franchises.
The company writes one in every 25 home loans in Australia by providing professional guidance on, and choice of, products offered by an extensive panel of leading lenders. Many of its brokers provide a broader service, helping customers source commercial and personal loans, asset finance, deposit bonds and providing referrals for risk and general insurances.
Uniquely, Mortgage Choice pays its franchisees the same commission rate for home loans they write, regardless of rate paid by the lender a new customer selects, working in the customer’s best interests to tailor a solution to them.
To cater to the growing needs of our customers, Mortgage Choice soft-launched in October 2012 its new financial planning business. Mortgage Choice Financial Planning will officially launch in FY14.
The company has no balance sheet or funding risk, and consistently delivers strong profits and attractive yields. It listed on the ASX in 2004 (MOC) and is a member of the Mortgage & Finance Association of Australia (MFAA).
Recent recognition: 2012, 2011 Australian Broking Awards Major Brokerage of the Year – Franchise; 2012 Australian Broking Awards Best Training and Education; 2012 Australian Broking Awards Best Ethical/Social Responsibility Program; No.1 on The Adviser magazine’s 2012, 2011, 2010 and 2009 Top 25 Brokerages list; 2012, 2010, 2009, 2008, 2006 and 2005 MFAA Awards Retail Aggregator/Originator of the Year; 2011, 2010, 2009 and 2008 10 Thousand FEET Top 10 Franchise list; 2010 Forbes Asia-Pacific Best Under A Billion list.
Mortgage Choice holds an Australian Credit Licence: no. 382869, issued by ASIC.
Visit www.mortgagechoice.com.au or call customer service on 13 77 62.