How the repayment is worked out
A principal and interest repayment is set so the loan is cleared exactly at the end of the term. Each repayment first covers the interest charged since the last one; the rest pays down the balance. Because the balance is highest at the start, the first years are mostly interest: on a 30-year loan at 6.45%, it takes about 20 years before more of each repayment goes to principal than to interest.
Repayments on common loan sizes
At 6.45% over 30 years, principal and interest.
| Loan | Monthly | Fortnightly | Weekly |
|---|---|---|---|
| $400,000 | $2,515.13 | $1,160.28 | $580.02 |
| $500,000 | $3,143.92 | $1,450.35 | $725.03 |
| $600,000 | $3,772.70 | $1,740.42 | $870.04 |
| $750,000 | $4,715.88 | $2,175.53 | $1,087.54 |
| $1,000,000 | $6,287.83 | $2,900.71 | $1,450.06 |
Ways to pay less interest
- Extra repayments. Anything above the scheduled amount goes straight to principal. Most variable loans allow them; fixed loans often cap them.
- An offset account. Savings in the offset reduce the balance you're charged interest on, and stay available to spend.
- Half-monthly fortnightly repayments. One extra month's repayment a year, without noticing.
- A better rate. If yours has drifted above what new customers get, the refinance calculator shows whether switching pays.
Questions people ask
How are home loan repayments calculated?
For a principal and interest loan, the repayment is the fixed amount that pays the interest each period and clears the balance by the end of the term: P x r / (1 - (1 + r)^-n), where P is the loan, r the rate per period and n the number of repayments. Early on most of each repayment is interest; by the end it's nearly all principal.
What are the repayments on a $600,000 home loan?
At 6.45% over 30 years, $3,772.70 a month, with $758,172 of interest over the life of the loan if the rate never changes.
Is it better to pay fortnightly or monthly?
True fortnightly repayments barely change the total. The saving comes from paying half the monthly amount every fortnight: 26 half-payments make 13 monthly repayments a year. On a $600,000 loan at 6.45% that clears it in about 24 years instead of 30 and saves $172,725 in interest.
How much does an offset account save?
Every dollar in the offset is a dollar you don't pay interest on, while your repayment stays the same, so more of it goes to principal. Keeping $50,000 in an offset against a $600,000 loan at 6.45% saves $230,974 in interest and ends the loan about 5 years early.
How much more does interest only cost?
On $600,000 at 6.45%, five interest-only years cost $3,225.00 a month, then $4,032.52 for the remaining 25 years. You pay $45,083 more interest in total than on principal and interest from day one.