How home loan repayments are calculated in Australia
Most Australian home loans are principal and interest loans, which are repaid by amortisation. Each repayment covers the interest charged for the period and a portion of the amount borrowed. Because interest is charged on the outstanding balance, the interest component is largest at the start of the loan and declines as the balance falls. The repayment itself remains level while the rate is unchanged, so the share applied to principal grows every period. By the final years of the term, almost all of each repayment reduces the debt.
The calculator applies the standard amortisation formula. The loan amount is multiplied by the periodic interest rate, and the result is divided by one minus the discount factor compounded over the total number of repayments. The periodic rate is the annual rate divided by 52 for weekly, 26 for fortnightly or 12 for monthly repayments. Lenders generally calculate interest daily and charge it monthly, and months differ in length, so the repayment set by a lender may differ slightly from any estimate produced by this method.
Choosing the loan amount, interest rate and loan term
The loan amount is the sum actually borrowed, which is normally the purchase price less the deposit, plus any lenders mortgage insurance premium added to the loan. Transfer duty and legal costs are usually paid in cash and do not form part of the loan, although they reduce the savings available as a deposit. Borrowers who have not yet settled on a figure may use the borrowing power calculator to estimate the amount a lender may be prepared to advance, and the stamp duty calculator to estimate the duty payable in the relevant state or territory.
The interest rate entered should reflect the loan being considered. A rate from a written offer or an existing loan statement is the most reliable input. Otherwise, a rate advertised for a comparable product, with the same purpose, repayment type and loan to value ratio, is a reasonable starting point. The calculator accepts rates from 1% to 12% and terms from one to 30 years. Most new owner-occupier loans are written over 25 or 30 years, and borrowers part way through a loan should enter the remaining term together with the current balance.
Fortnightly vs monthly repayments: what actually changes
Repayment frequency is widely misunderstood. The calculator shows the true amortised repayment for each frequency, which means the weekly or fortnightly figure is the amount that repays the loan over exactly the chosen term. In an illustrative example of a $600,000 loan at a hypothetical 6.00% over 30 years, the monthly repayment is approximately $3,597, the fortnightly repayment approximately $1,660 and the weekly repayment approximately $830. Total interest differs by less than $1,000 across the three, because more frequent payments reduce the balance only slightly earlier.
The commonly cited saving from fortnightly repayments arises from a different arrangement, in which the borrower pays half the monthly amount every fortnight. There are 26 fortnights in a year, so this is equivalent to 13 monthly repayments rather than 12. In the same hypothetical example, half the monthly repayment is approximately $1,799 per fortnight, about $139 more than the amortised fortnightly figure. Maintained at a constant rate, that arrangement would repay the loan in approximately 24 and a half years and reduce total interest from approximately $695,000 to approximately $546,000.
The saving therefore comes from the additional amount repaid each year and not from the frequency itself. Lenders differ in how they set fortnightly repayments: some halve the monthly amount, while others calculate a true fortnightly figure. Borrowers who wish to repay a loan sooner may confirm which method the lender uses. Where the lender applies the lower amortised figure, a similar result may be achieved by making a regular voluntary additional repayment, the effect of which may be modelled with the extra repayment calculator.
How much interest is paid over the life of a home loan
Total interest is often the most striking figure the calculator produces. In the illustrative $600,000 example at 6.00% over 30 years, total repayments are approximately $1,295,000, of which approximately $695,000 is interest. The interest exceeds the amount originally borrowed. This outcome is a normal consequence of a long term and is not a sign of an unusual loan. The bar beneath the result shows the proportions of principal and interest, and the total changes markedly when the rate or term is adjusted.
The year-by-year breakdown shows how the balance falls over time. In the same hypothetical example, the first monthly repayment comprises $3,000 of interest and approximately $597 of principal. Over the first year, approximately $35,800 is paid in interest and the balance falls by only about $7,400. The principal component does not overtake the interest component until approximately year 19. This pattern explains why additional repayments made early in the term have a disproportionate effect: every dollar of principal repaid early avoids interest for all of the remaining years.
How interest rate changes affect mortgage repayments
The great majority of Australian home loans carry a variable rate, and lenders may change that rate at any time. The Reserve Bank of Australia notes that the cash rate has a strong influence on lending rates, although funding costs, competition and risk also play a part, so that changes do not always flow through uniformly. The calculator assumes a constant rate over the whole term. That assumption is a necessary simplification, and the result is best regarded as a snapshot of the repayment at a given rate.
Testing a range of rates is therefore prudent. In the illustrative $600,000 example over 30 years, an increase from 6.00% to 6.50% raises the monthly repayment from approximately $3,597 to approximately $3,792, an increase of about $195 per month, and adds approximately $70,000 to the total interest if maintained for the full term. Borrowers comparing a fixed rate with a variable rate may use the fixed vs variable rate calculator, since a fixed rate offers certainty of repayment for a period but usually restricts additional repayments and may involve break costs.
How Australian lenders assess whether repayments are affordable
The repayment shown by the calculator is not the figure a lender uses to decide whether a loan is affordable. The Australian Prudential Regulation Authority expects authorised lenders to assess whether a new borrower could meet repayments at an interest rate at least 3.0 percentage points above the actual loan rate. APRA has described this serviceability buffer as a contingency for rate rises and for unforeseen changes in the income or expenses of the borrower over the life of the loan. The expectation has applied since late 2021.
As an illustration of the effect, the hypothetical $600,000 loan at 6.00% over 30 years has a monthly repayment of approximately $3,597, but at an assessment rate of 9.00% the repayment would be approximately $4,828. A lender would generally test the application against the higher figure, together with living expenses and other debts. A borrower may therefore be able to afford the estimated repayment comfortably and still be declined for that loan amount. Entering a rate three percentage points above the expected rate gives a rough indication of the assessment repayment.
Loan term: 25 years compared with 30 years
A longer term lowers each repayment and increases the total interest, because the principal remains outstanding for longer. In the illustrative $600,000 example at 6.00%, a 30-year term requires approximately $3,597 per month and produces total interest of approximately $695,000. A 25-year term requires approximately $3,866 per month, which is about $269 more, and produces total interest of approximately $560,000. The shorter term therefore saves approximately $135,000 in interest in exchange for a higher regular commitment.
Some borrowers select the longer contractual term and make voluntary additional repayments, which preserves the option of reverting to the lower minimum if circumstances change. Others prefer the discipline of a shorter term. Research published by the Reserve Bank indicates that variable rate loans in Australia generally permit early repayment without penalty, and that many households hold prepayments in redraw facilities or an offset account. The mortgage payoff calculator shows the repayment required to clear a loan within a chosen number of years.
Common mistakes when estimating home loan repayments
Several errors recur. The first is to enter the property price in place of the loan amount, which overstates the repayment for anyone contributing a deposit. The second is to overlook costs outside the formula: the calculator excludes monthly or annual fees, package fees and insurance, and any lenders mortgage insurance premium must be included in the loan amount if it is to be capitalised. The third is to assume that the fortnightly figure is half the monthly figure, which it is not, for the reasons set out above.
A further error is to model an interest-only loan with a principal and interest calculator. During an interest-only period the repayment covers interest alone, and when that period ends the principal must be repaid over a shorter remaining term, which raises the repayment. Borrowers may also rely on a single low rate without considering how the repayment would change if rates rose. Finally, the estimate says nothing about other ownership costs such as council rates, insurance, strata levies and maintenance, which belong in any household budget.
Using the repayment estimate and related calculators
The estimate is most useful when tested against a realistic budget. Borrowers may compare the repayment with current rent or housing costs, allow for the other costs of ownership and consider whether a margin would remain if rates were two or three percentage points higher. Where the repayment appears too high, the available adjustments are a larger deposit, a lower purchase price, a longer term or a more competitive rate. Each of these may be tested in the calculator in a few moments.
Related decisions may be explored with other BorrowWise tools. The mortgage calculator models a whole purchase, including indicative transfer duty and lenders mortgage insurance. The refinance calculator estimates the saving from moving an existing loan to a lower rate after switching costs, and the offset account calculator shows how savings held against a loan reduce interest. All figures are estimates and general information only. They do not take account of individual objectives, financial situation or needs, and a licensed adviser or mortgage broker is able to provide personal assistance.
Example monthly repayments
Illustrative principal and interest repayments over a 30-year term at 6.10% p.a. The rate is an example only and is not a current market rate.
| Loan amount | Monthly | Fortnightly | Total interest |
|---|---|---|---|
| $400,000 | $2,424 | $1,118 | $472,800 |
| $500,000 | $3,030 | $1,398 | $591,000 |
| $650,000 | $3,939 | $1,817 | $768,300 |
| $800,000 | $4,848 | $2,237 | $945,600 |
| $1,000,000 | $6,060 | $2,796 | $1,182,000 |
Warning: The interest rate used here is an example only. It is not a comparison rate and is not a rate offered by any lender, and it does not include fees and charges. Different rates, terms, fees or loan amounts will give a different result.
Mortgage Repayment Calculator: frequently asked questions
How much are repayments on a $600,000 mortgage in Australia?
As an illustrative example only, a $600,000 principal and interest loan at a hypothetical rate of 6.00% over 30 years requires approximately $3,597 per month, $1,660 per fortnight or $830 per week. The actual repayment depends on the rate, term and fees that apply to the particular loan, and changes whenever a variable rate changes. The inputs may be adjusted to reflect a specific loan.
Is it better to pay a mortgage weekly, fortnightly or monthly?
Frequency alone makes little difference where the lender sets a true amortised repayment. A meaningful saving arises only where the fortnightly repayment is set at half the monthly amount, or the weekly repayment at one quarter, because the borrower then pays the equivalent of 13 monthly repayments each year. Many borrowers simply align repayments with their pay cycle, which may make budgeting easier.
How much interest will I pay on a 30-year home loan?
The answer depends on the loan amount and the rate. In a hypothetical example of $600,000 at a constant 6.00% over 30 years, total interest is approximately $695,000, which is more than the amount borrowed. Reducing the term to 25 years lowers the figure to approximately $560,000. The calculator displays total interest for any combination of amount, rate and term.
Does the mortgage repayment calculator include fees and lenders mortgage insurance?
No. The calculator estimates principal and interest only. Ongoing account fees, annual package fees and establishment costs are excluded, and any lenders mortgage insurance premium is included only if the user adds it to the loan amount. Where the deposit is less than 20% of the property value, the BorrowWise LMI calculator provides an indicative estimate of the premium.
What interest rate should be entered in a home loan repayment calculator?
A rate from a written loan offer or a current loan statement is the most reliable input. Otherwise, a rate advertised for a comparable loan, with the same purpose, repayment type and deposit level, may be used as a starting point. It is prudent to repeat the calculation at a rate two or three percentage points higher, in order to understand how the repayment would change if rates were to rise.
Why is my lender's repayment different from the calculator result?
Lenders generally calculate interest daily on the actual balance and charge it monthly, so months of different lengths, the settlement date and the timing of each payment all affect the figure. Fees may be added to the repayment, and some lenders round repayments upwards. The calculator uses equal periods and a constant rate, which produces a close estimate but not an exact match.
What is the difference between principal and interest and interest-only repayments?
A principal and interest repayment covers the interest charged and also reduces the amount owing, so that the loan is fully repaid by the end of the term. An interest-only repayment covers the interest alone for a set period, after which the loan reverts to principal and interest over the remaining term, generally at a noticeably higher repayment. This calculator models principal and interest loans only.
Can lenders approve a loan based on the repayment shown here?
No. Lenders regulated by APRA are expected to assess repayments at an interest rate at least 3.0 percentage points above the actual loan rate, and to take account of living expenses, other debts and the stability of income. The repayment shown here reflects the rate entered and is a budgeting estimate. The borrowing power calculator gives a closer indication of how a lender may assess capacity.