Maximising Rental Cash Flow: Is Fortnightly Better Than Monthly?

Should You Be Paid Fortnightly or Monthly by Your Property Manager?

A common request from property investors is to be paid fortnightly rather than monthly by their property manager. The idea is to make better use of the rental income and have the money working for the investor, rather than sitting in the property manager's bank account.

What is the benefit in dollar terms? Is there a significant gain?

1. If the rent is paid into a standard cheque or transaction account (that doesn't earn interest), and your mortgage payments are made monthly as usual, there is generally no financial benefit. In most cases, the gain is $0.
2. If you have a flexi facility or revolving credit account, the outcome is different. These accounts typically have floating interest rates of around 5.5% (although if you are paying more than this, it's worth asking your bank for a discount, as lower rates are often available).

Example

• Average rent: $600 per week
• Less property management fees: approximately $60
• Net rent received: $540 per week, or $1,080 if paid fortnightly

At an interest rate of 5.5%, applying the $1,080 to your revolving credit or flexi facility 15 days earlier saves approximately $2.44 in interest.

That equates to:

• $2.44 per month
• $29.28 per year, plus a small amount of additional savings through compounding.

Should I Pay My Mortgage Fortnightly?

The commonly promoted advantage of fortnightly mortgage payments is that there are 26 fortnights in a year, rather than the equivalent of 24 half-monthly payments. As a result, paying half of your monthly repayment every fortnight results in 13 monthly repayments each year instead of 12.

Annual repayments

• Monthly: 12 × $2,160 = $25,920
• Fortnightly: 26 × $1,080 = $28,080

The fortnightly option therefore pays an additional $2,160 each year, which is equivalent to one extra monthly repayment.

Interest in the first year

Using a standard reducing-balance loan of $400,000 at an interest rate of 4.6%:

Interest saved in Year 1: approximately $57.

What if the Total Annual Repayments Are the Same?

If the annual repayments are aligned:

• Monthly: $2,340 × 12 = $28,080 per year
• Fortnightly: $1,080 × 26 = $28,080 per year

Interest in the first year

Using the same loan assumptions ($400,000 at 4.6%):

Difference

• Interest saved by paying fortnightly: approximately $10.42 in the first year.
• Additional principal repaid: approximately $10.42.

What Does This Tell Us?

As the total annual repayments are the same, the benefit of fortnightly repayments is relatively small at this loan size and interest rate – around $10 per year initially.

The much larger savings often promoted for fortnightly repayments come from paying half the monthly repayment every fortnight, which results in 13 monthly repayments per year rather than 12. The additional repayment, not the payment frequency itself, creates most of the savings.

In our revised example, because both options repay exactly $28,080 per year, the only advantage of fortnightly repayments is the small benefit of reducing the loan balance slightly earlier throughout the year.

Rule of thumb

For a $400,000 loan at 4.6%, if the total annual repayments are identical, the saving from paying fortnightly rather than monthly is likely to be only tens of dollars per year, not hundreds.

This article is for general information only and is not intended as accounting, tax, or financial advice. You should seek advice from a qualified professional before acting on any information provided.

Any examples or figures are for illustration purposes only and should not be relied on for decision-making.