How Mortgage Repayments Are Calculated
Your repayment is set by three variables: the loan amount, the interest rate, and the loan term. The amortisation formula spreads principal and interest evenly across every repayment for the life of the loan.
Annual repayments on a $750,000 loan at 6.00% over 30 years. Each bar is one year's total repayments (~$54,000) split between interest paid and principal repaid. The split flips around year 20.
Read this as: in year 1, about 83% of your repayments go to the bank's interest charge and only 17% reduce the actual loan balance. By year 30, that's almost completely inverted — 97% is repaying principal and only 3% covers residual interest on the small remaining balance.
Take a typical 2026 Sydney upgrader: $750,000 loan on a $1,000,000 purchase (25% deposit, so no LMI), variable rate 6.00% p.a., 30-year term, principal-and-interest, repayments made monthly.
Plugging the numbers into the amortisation formula P × [r(1+r)n] ÷ [(1+r)n − 1] where P = 750,000, r = 0.005 (monthly), n = 360, gives a monthly repayment of about $4,497. Over the full 30 years you'll repay $1,618,920 in total — $868,920 in interest on top of the original principal.
The first repayment is mostly interest: $3,750 of interest charged on the opening balance and only $747 reducing the principal. By year ten the split is roughly $3,193 interest and $1,304 principal; by year twenty it's about $2,288 interest and $2,209 principal; in the very last repayment of the loan, the entire $4,497 is principal, with interest down to essentially zero.
Now swap to fortnightly repayments of half the monthly amount ($2,249 every two weeks). Because there are 26 fortnights in a year — equivalent to 13 monthly payments instead of 12 — the loan is paid off in roughly 25 years, not 30, and you save approximately $118,000 in interest. The headline rate hasn't changed; the extra payment frequency has.
Four buyer profiles we see most often, and what their monthly repayments look like under early-2026 rates. All examples assume principal-and-interest, no offset, no rate change.
1. First home buyer — $600,000 loan, 5.85% fixed for 3 years, 30-year term
A couple buying a $750,000 unit in outer Melbourne with a 20% deposit. Monthly repayment is about $3,540. After the 3-year fixed period the rate typically reverts to the lender's variable revert rate (often higher than the fixed rate — check the lender's loan disclosure). Plan repayments around the variable revert rate from year four, not the fixed rate.
2. Upsizer — $1,200,000 loan, 6.10% variable, 25-year term
Family moving from inner-Sydney unit to a $2.0M Northern Beaches house with ~40% deposit from prior equity. Monthly repayment is about $7,797. A 25-year term costs more per month than a 30-year ($1,000–$1,200 more) but saves roughly $340,000 in lifetime interest at this rate.
3. Property investor — $700,000 interest-only, 6.40%, 5-year IO period then 25-year P&I
Investor with negative-geared property looking to maximise tax deductibility and free cash for the next deposit. Interest-only repayment is $3,733/month. When the loan reverts to P&I after year 5, the repayment jumps to about $4,693/month (over a 25-year remaining term). That ~$960/month step-up catches many investors out — APRA expects you to demonstrate you can absorb it before approval.
4. Refinancer — $500,000 remaining balance, refinance from 7.00% to 6.00%, 25 years left
Refinancing from a high-margin lender to a sharper one. Current repayment is about $3,535/month; new repayment is $3,222/month — saving $313 a month and about $93,900 over the remaining term. Subtract switching costs (discharge fee ~$350, registration ~$200, new lender's establishment fee, possibly an LMI top-up if your LVR is over 80%) before deciding.
Headline rate vs comparison rate. Lenders are required by the National Consumer Credit Protection Act 2009 to advertise a comparison rate alongside the headline. The comparison rate folds in establishment fees, monthly service fees and discharge fees over a notional $150,000 / 25-year loan, so it's only directly comparable for that size loan. For larger loans, the headline-rate-plus-fees gap is usually smaller than the comparison rate implies. Always run the actual fee schedule against your own loan size.
APRA's 3% serviceability buffer. Since October 2021, ADIs (banks and credit unions) must assess your repayment capacity at a rate 3 percentage points above the actual loan rate. A loan offered at 6.00% is serviceability-assessed at 9.00%. That can shrink your maximum borrow by 25–35%, and it's the single biggest reason borrowers feel "approved on paper" doesn't match what a calculator at the headline rate suggests.
Offset accounts vs redraw vs extra repayments. An offset is a 100% transactional account where the balance is netted against your loan balance daily for interest calculations. Redraw lets you pull back voluntary extra repayments but funds inside redraw are legally repaid principal — different tax and access rules, particularly for investors. Our calculator assumes neither: if you have an offset with $50,000 in it on a $600,000 loan at 6%, you save about $3,000 a year in interest you'd otherwise pay.
Fixed-rate break costs. Breaking a fixed-rate loan (refinancing, selling, or switching to variable) before the fixed term ends triggers a break-cost calculation based on the difference between your locked rate and current wholesale swap rates. In a falling-rate environment break costs can run into tens of thousands. ASIC MoneySmart has a useful primer; always ask the lender for an indicative break-cost quote in writing before deciding.
What we don't model. This calculator doesn't include LMI premiums (use the LMI calculator), stamp duty (stamp duty calculator), conveyancing costs, building and pest inspections, ongoing fees, rate changes mid-loan, additional repayments, redraw, offset balances, or HEM (Household Expenditure Measure) used by lenders for borrowing-capacity assessment. Treat the output as repayment-only, fixed-rate-for-the-whole-term scenario planning.
Repayments are computed in-browser using the standard amortisation formula R = P × r(1+r)n / [(1+r)n − 1], where R is the periodic repayment, P the loan principal, r the periodic interest rate (annual rate ÷ payments per year), and n the total number of repayments. For interest-only loans, R = P × r for the IO period, then the loan switches to the standard formula over the remaining term. Fortnightly mode uses 26 payments per year, weekly uses 52. No data leaves your browser.
Sources for the rates and rules referenced on this page: RBA Cash Rate history for context on the rate cycle; APRA's 3% serviceability buffer guidance (Oct 2021); ASIC MoneySmart's home-loans guidance; National Consumer Credit Protection Act 2009 (Cth) for comparison-rate rules.
Reviewed: 18 May 2026 · Updated for: 2025–26 financial year, APRA serviceability buffer rules current as of March 2026 · Editor: AussieCalc Editorial Team
Mortgage repayments are calculated using the standard amortisation formula. Each repayment covers the interest accrued on the outstanding loan balance, plus a portion of the principal. In the early years of a loan, most of each payment goes toward interest — as the balance falls, more goes toward principal. Over a full 30-year term, total interest paid on a $600,000 loan at 6% exceeds $690,000.
The fortnightly vs monthly distinction matters more than most borrowers realise. Paying fortnightly (26 payments a year) is mathematically equivalent to making 13 monthly payments instead of 12. On a $500,000 loan at 6%, switching from monthly to fortnightly repayments can reduce your loan term by approximately 3–4 years and save over $50,000 in interest.
For interest-only loans, no principal is repaid during the IO period. Repayments are lower, but your loan balance stays the same. When the interest-only period ends and the loan converts to principal and interest, your remaining repayments are recalculated over the remaining term — which results in significantly higher repayments than if you had started on P&I from the beginning.
This calculator does not include lender fees, offset account effects, or rate changes over the loan term. For a full cost comparison including stamp duty and LMI, use the Stamp Duty Calculator and LMI Calculator alongside this tool. For independent guidance on home loans, see MoneySmart home loans (ASIC).
How is my mortgage repayment calculated?
Your repayment is calculated using the standard amortisation formula: P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P is the principal, r is the periodic interest rate, and n is the total number of payments. Each repayment covers accrued interest first, then reduces the outstanding principal.
What's the difference between fortnightly and monthly repayments?
Fortnightly repayments result in 26 payments per year (equivalent to 13 monthly payments), which means you pay off your loan faster and save on total interest. Switching from monthly to fortnightly can cut years off a typical 30-year mortgage.
What does interest-only mean?
With an interest-only loan, your repayments cover only the interest charged each period — you don't pay down the principal. This results in lower repayments now but you'll owe the full original loan amount at the end of the interest-only period. Common among property investors for cash flow purposes.
What is the average Australian mortgage interest rate in 2026?
As of early 2026, the average Australian variable home loan rate sits around 5.5–6.5% depending on the lender and your loan-to-value ratio (LVR). Fixed rates vary more widely. Always compare rates from the major banks (CBA, ANZ, Westpac, NAB) as well as online lenders and brokers.
Does this calculator include other costs like stamp duty or LMI?
No — this calculator focuses purely on loan repayments. For stamp duty costs, use our Stamp Duty Calculator. Lenders Mortgage Insurance (LMI) typically applies when your deposit is less than 20% of the property value and can add thousands to your upfront costs.
How does the APRA 3% serviceability buffer affect what I can borrow?
APRA requires regulated lenders to assess your repayment capacity at the actual loan rate plus a 3 percentage point buffer. So if you're being offered a 6.00% loan, the lender models your repayments at 9.00% when running serviceability. That's why a calculator using the headline rate often shows a higher "affordable" loan than the bank will actually approve. Some non-bank lenders apply a smaller buffer (often 2%), which is one reason their borrowing capacity assessments can come out higher.
Will the RBA cash rate change immediately flow through to my repayments?
For variable-rate loans, the lender chooses when (and by how much) to pass on an RBA cash-rate change. Most lenders update standard variable rates within two to four weeks of an RBA meeting, but they're not obliged to pass on the full move. Fixed-rate loans are unaffected for the duration of the fixed period. If you're on a discount or "professional package" rate, the move applies to your headline rate first, then your discount comes off the new rate.
What's the difference between headline rate and comparison rate?
The headline rate is the advertised interest rate. The comparison rate is a regulated metric that includes most fees (establishment, monthly service, discharge) standardised to a $150,000 loan over 25 years. It's a useful apples-to-apples lens for small loans, but it can overstate the fee impact on larger loans. Always ask the lender for a full Key Facts Sheet showing the fees applied to your actual loan size and term.
Should I make extra repayments or put money in an offset account?
The interest saving is essentially the same: a dollar in an offset and a dollar of extra repayment both reduce the interest charged that month. The differences are about access and tax. Offset funds are yours, fully and instantly. Extra repayments sit in redraw — accessible at the lender's discretion, with possible administration. For investors, this matters: paying down an investment loan and redrawing for a personal purpose can break the tax-deductibility of the interest, which an offset typically avoids.
How much can break costs be on a fixed-rate loan?
Break costs depend on the gap between your locked-in rate and current wholesale swap rates, the remaining fixed period, and the principal still outstanding. In a falling-rate environment (where wholesale rates have moved down since you fixed) break costs can be tens of thousands of dollars on a typical mortgage; in a rising-rate environment they're often near zero. Lenders are required to give you an indicative break cost on request — always ask for one in writing before refinancing or selling out of a fixed loan.
Do I have to use the same lender for my whole loan life?
No. You can refinance to another lender at any time (subject to fixed-rate break costs if you're inside a fixed period). The Australian banking regulator's "loan portability" rules and the Consumer Data Right have made switching easier. Typical switching costs are $500–$1,000 in fees, plus possibly LMI if your LVR is over 80%. The rule of thumb is: if you can find a rate 0.30–0.50 percentage points lower than your current rate and you're staying in the property at least two more years, refinancing usually pays back the switching costs within 12–18 months.
What is HEM and how do lenders use it?
HEM stands for Household Expenditure Measure, an ABS-derived benchmark of typical monthly household living costs at different income tiers, used by every Australian lender to floor your declared living expenses during serviceability. If you tell the bank you spend $2,000/month and HEM for your household type says $3,500, the bank will use $3,500. That's why borrowers with high but irregular self-reported spending (private school, travel, hospitality) are often surprised by the bank's "affordable" loan size — it can be lower than HEM-floored expenses would suggest.