How home loan repayments are calculated in Australia

An $800k loan at 6% over 30 years comes to about $4,796 a month. Change the term to 40 years and it falls to about $4,402, but the total interest rises. I'd start with that comparison: what you pay each month and what you'll still owe later.

Those figures assume monthly principal and interest payments, an unchanged rate and no fees. Use your own amount, quoted rate and term in our mortgage calculator, then work through the examples below to see why the payment changes.

Use the actual interest rate quoted for your loan in the calculator. The comparison rate includes certain fees to help compare loans; it doesn't calculate the amount coming out of your account.

For an $800k loan at an assumed 6% annual rate over 30 years, the monthly principal and interest repayment is approximately $4,796.40. The calculation assumes monthly payments, an unchanged rate and no fees.

You don't need to do that calculation by hand. The value of understanding the inputs is that you can check whether 2 loan quotes are being compared on the same basis. Moneysmart's mortgage calculator lets you test different amounts, rates and terms.

Using a monthly-interest approximation, the first month's interest on $800k at 6% is $4,000. Of the $4,796.40 repayment, about $796.40 reduces the principal. The remaining balance is about $799,203.60.

The next payment is calculated against a slightly lower balance, so a little more goes towards principal. This gradual reduction is called amortisation.

The total regular repayment stays the same in this example. As the balance falls, interest takes a smaller share and more goes towards clearing the loan. An extra payment brings that reduction forward. The table assumes an unchanged rate, monthly payments and no fees or extra repayments.

An amortisation schedule is the repayment plan laid out over time. It lets you look up the expected balance after a year, compare how much interest different terms would cost and see why an early extra payment can help. The figures in the table are annual totals, rather than the amount of one monthly payment.

Paying down principal also increases your equity if the property value stays the same. Equity is the property's value less the debt secured against it, so a change in the property's value affects that figure too.

Australian lenders commonly calculate interest daily and charge it monthly. The number of days, payment dates, offset balance and product rules can make the statement differ from a simple monthly model.

A common daily-interest calculation is: loan balance × annual interest rate ÷ 365. For a $500k balance at 6%, that is about $82.19 a day. If the balance stays unchanged for 31 days, the interest for that period is about $2,547.95. CommBank explains this daily calculation for its home loans. Check your own loan's terms for the method it uses.

When you make a repayment or put money into an eligible offset, the balance used for subsequent interest calculations changes. That is why multiplying the opening balance by one monthly rate will not always match the statement exactly.

Ask for your first repayment date and amount before settlement. The first interest period may be longer or shorter than a standard month. Once the loan is running, compare the statement's opening balance, interest, fees, repayments and closing balance. If something looks wrong, ask the lender to explain the dates and amounts used.

On a principal and interest loan, each payment covers the interest charged and pays back some of the money you borrowed. The amount you still owe is your outstanding principal. As that balance falls, less interest is charged and more of your payment can go towards the debt.

You may be able to make payments weekly, fortnightly or monthly, depending on the product. Pick a schedule that works with your pay cycle, then check the annual total. Paying more often and paying more overall are separate decisions.

Your purchase price and loan amount are different figures. The deposit you put towards the property reduces what you need to borrow. Stamp duty, legal fees and other purchase costs still need a place in your budget. Any fee or LMI premium added to the loan increases the balance used to calculate repayments.

An interest rate of 6% per year doesn’t mean you pay 6% of the original loan amount every year forever. The lender calculates interest on the relevant balance as you repay the loan. We'll show the daily calculation below, including how money in an offset changes it.

Use the loan's actual interest rate in a repayment calculator. The comparison rate brings the interest rate and certain fees together using a specified loan amount and term. It helps you compare costs, but it is not a personalised repayment quote.

Check the assumptions beside the comparison rate, then compare fees for your own loan amount and the time you expect to keep it. A package fee, an offset account you’ll use and the cost of leaving a fixed loan can all affect the decision. Moneysmart's guide to choosing a home loan explains what to compare.

If you buy for $600k and contribute $100k towards the price, the starting loan is $500k before any financed fees or LMI. Purchase costs still need to be funded separately unless the lending arrangement includes them.

The following figures use the same $800k balance, monthly principal and interest payments and no fees. Each rate stays unchanged throughout its example term.

A lower required payment can help cash flow, but a longer term increases the time spent paying interest. Our 40 year mortgage guide compares the longer-term options and trade-offs.

If you refinance, use the remaining term in the comparison. Restarting at 30 years can make a new payment look cheaper even when the rate saving is small.

On the same $800k loan over 30 years, the monthly payment is about $4,796 at 6%, $5,322 at 7% and $5,870 at 8%. Use these assumed rates to test your budget; they aren’t forecasts. Moving from 6% to 7% takes another $526 each month, or $6,312 a year using the rounded payments.

Compare that increase with your take home income after bills, other debts and an emergency reserve. If it would use up the whole surplus, try a smaller loan or a different purchase budget. Allow for higher insurance, rates and other household costs too.

Fixing a rate can help if knowing the repayment for a set period matters to you. You may miss a rate reduction during that period, and breaking the fixed term can cost money. With a split loan, the variable portion may give you flexibility for extra repayments or an offset, if the product offers them.

For example, if you split an $800k loan into $400k fixed and $400k variable, calculate the payment on each $400k part using its quoted rate. Don't put the full $800k into the calculator twice. Our fixed-interest-rate guide covers the features and restrictions to compare.

An RBA cash-rate decision doesn’t itself change the repayment on your account. For a variable loan, the lender decides whether and when to change its rate. Your notice sets out the change that applies to you. A fixed portion keeps its agreed rate during the fixed period; check the repayment that will apply when that period ends.

Principal and interest is the usual starting point for an owner-occupier who wants to repay the home over the loan term. Interest only can free up cash for an agreed period, but it leaves more debt to repay later. Compare the later payment before deciding that the lower initial amount works for you.

On an interest only loan, the payment covers interest during the agreed period and the principal doesn't reduce through those minimum payments. At an unchanged 6%, an $800k balance costs approximately $4,000 a month in interest using a monthly model.

If a 30 year loan starts with 5 years of interest only and the balance stays $800k, you then have 25 years to repay it. At the same 6% rate, the principal and interest payment would be about $5,154 a month, compared with $4,796 if you had repaid principal from the start over 30 years.

The actual interest only product may have a different rate. Compare both the initial and later payments, not just the first one. Moneysmart's interest only guide explains the risks.

Ask why an interest only period would suit your plans and how you would afford the payment afterwards. It may have a role in an investment or construction strategy, but relying on a future pay rise leaves your budget exposed if that rise doesn’t happen. Compare the rate and total interest for both options.

Interest only minimum payments don’t build equity by reducing the debt. Your equity can still rise or fall with the property's value. That is different from the predictable reduction in the loan balance when you repay principal.

Half a monthly repayment paid every fortnight creates 26 half-payments each year, equivalent to 13 monthly payments. That extra annual payment is why this arrangement can reduce the debt faster.

Some lenders instead calculate the fortnightly minimum as the monthly payment multiplied by 12 and divided by 26. That spreads the same annual amount across more payments. It doesn't create an extra month's repayment.

For a $4,800 monthly payment, half-monthly fortnightly payments are $2,400 and total $62,400 a year. The annual-equivalent amount is about $2,215.38 a fortnight, totalling $57,600. Confirm the lender's calculation before budgeting for a saving.

Ask the lender which calculation it uses and which amount you’re authorising. Then line the payment date up with your pay cycle, leaving enough cash for the first debit. Moving to more frequent payments can affect daily interest through the payment timing, but the larger saving in the half-monthly example comes from paying an extra $4,800 each year.

Don't cancel the old arrangement until the lender confirms the new amount and first payment date. If you keep money in an offset, allow for both the repayment and your upcoming bills when checking how much cash is available.

Extra repayments reduce the balance earlier, which can reduce future interest. Before paying extra, check the amount allowed, when that allowance resets and whether exceeding it triggers a fixed rate break cost. Ask about the rules for changing payment frequency and accessing redraw too.

A 100% offset works through a separate linked account. With a $500k loan and $20k in offset, interest is calculated on $480k while the offset money stays in its account. The loan balance remains $500k.

Your minimum repayment may not fall just because you hold money in offset. Instead, less interest can mean more of the payment goes towards principal. Check how your product handles repayment reviews.

Our offset account guide explains the difference between the loan balance and the amount on which interest is charged. Check whether the account is a 100% offset, which part of the loan it is linked to and whether the product's rate or fees are higher.

For an interest only loan, reducing the interest charged can reduce the amount you need to pay for that period. For a principal and interest loan, keeping the same repayment can clear the debt sooner. Your lender can explain how its minimum-payment rules apply.

An extra repayment goes into the loan and reduces the debt. Redraw lets you take some of those extra payments back out, subject to the lender's access rules. Money in an offset stays in a separate account.

If you’ll need the money for repairs or time off work, compare how easily you can access it before deciding where to keep it. Read the product terms for limits, minimum amounts, fees or delays. Moneysmart's offset guide explains the distinction.

On the same $800k loan at 6%, increasing the monthly payment from about $4,796 to $4,996 clears the loan in about 27 years instead of 30. It saves roughly $112k in interest if the rate stays unchanged and you maintain the extra payment, with no fees. The last payment is smaller.

Check that your loan permits the extra payments and leave enough cash for bills and emergencies. You can try different amounts in the calculator below, or use our pay off your home loan faster guide to compare regular extras, lump sums and an offset.

Earlier extra payments have more time to reduce future interest. You don't need to wait for a large lump sum, but don't put yourself in a position where paying extra forces you to use a credit card for everyday bills. Start with the amount your budget can support and review it when your income or expenses change.

Our guide to paying off your loan faster covers regular top-ups, offset, redraw and repayment frequency in more detail.

Financed fees become part of the debt on which you pay interest. If $15k of LMI is added to an $800k loan, calculate repayments on $815k, subject to the lender allowing that total borrowing.

At an assumed 6% over 30 years, the additional $15k adds about $90 a month. Over the full term it also attracts interest. An LMI waiver or eligible guarantee can change that cost, but doesn't remove other purchase expenses.

Our mortgage fees guide explains what to include. Compare the features you'll use, the cost of leaving and the time you expect to keep the loan. A lower rate with an offset fee can suit someone with steady savings, while a simpler loan may cost less if the offset will stay nearly empty.

LVR means loan to value ratio: the loan amount divided by the property value the lender uses, expressed as a percentage. LMI may apply above 80% LVR, but there are exceptions, including eligible waivers and government guarantees. If the lender adds LMI to your loan, use that larger balance in your repayment calculation.

If your deposit is tight, check our guides to whether a home loan can cover stamp duty and the Queensland First Home Owner Grant. They explain the separate eligibility and cash requirements. A grant or concession can help with buying costs without changing the repayment formula.

Use our mortgage calculator for a repayment estimate and the extra repayments calculator to explore paying down the debt sooner. Keep the loan amount, term and repayment type the same when comparing rates so you can see what caused the difference.

A calculator assumes you follow the schedule you enter. A rate change, different payment dates or a change to an offset balance will alter the result. It also can’t tell you whether a lender will approve the amount. Use it to compare the payments, then have your income, deposit and expenses assessed before relying on a purchase budget.

The bank tests whether you can afford the loan under its assessment rules, which can use a higher rate and other assumptions. That assessed payment isn't necessarily the amount debited from your account.

Banks generally test a new home loan at least 3% above the actual rate under APRA's lending guidance. At a 6% loan rate, that's an assessment rate of at least 9%, subject to the bank's other rules and any applicable exception. Your repayments still use your actual loan rate.

Tell us the repayment you want to work within, even if the bank could approve more. Include rates, insurance, repairs, body corporate costs and your plans for the money left over. Our household expenses guide explains how the bank's benchmark fits into that check.

The standard formula is: M = P × r × (1 + r)^n ÷ [(1 + r)^n − 1].

Here, M is the monthly repayment, P is the loan amount, r is the annual rate divided by 12 and expressed as a decimal, and n is the number of monthly payments. For this example, P is 800,000, r is 0.005 and n is 360.

For the $800k example, dividing 6% by 12 gives a monthly rate of 0.5%, or 0.005 as a decimal. Multiplying 30 years by 12 gives 360 payments. Put those figures into the formula and you get about $4,796 a month.

Over 360 payments, that is roughly $1.727m paid in total, including about $927k in interest. That total assumes you keep the same rate and repayment schedule for the whole 30 years. Paying extra or changing the rate changes the result.

Bring your loan quote, deposit figure and household budget to our team. We'll help you compare the payments and explain which lender options fit your circumstances. If you’re still saving, we can work through a target loan amount so you know what you’re aiming for. You can contact us or use the assessment button earlier in this guide.

Our Brisbane mortgage broker team can compare the quotes on the same amount, remaining term and repayment type.

What is an offset account and how does it work? explains how your savings can reduce interest while remaining in a separate account.

Use the home loan extra repayments calculator to compare regular top-ups, and read how to pay off your home loan faster for a fuller repayment plan.

If you’re still working out your deposit, read the Queensland First Home Owner Grant guide and can a home loan cover stamp duty? before setting the amount you need to borrow.

Our fixed-interest-rate guide explains the features to check before fixing all or part of your loan.