Home loan repayments in Australia are based on loan size, interest rate, and loan term
A mortgage repayments calculator can help estimate costs before you apply
Repayments can change over time, especially with variable rates or when fixed terms end
Making extra repayments or using an offset account may reduce the interest you pay over the life of the loan
Whether you’re buying your first home, refinancing your home loan, or growing your investment portfolio, understanding your home loan repayments is an important part of managing your finances.
In this guide, we break down how home loan repayments work, how they’re calculated, and what can influence the amount you pay. We also cover frequently asked questions, including how to adjust your repayments and what happens if you miss one.
What are home loan repayments?
Home loan repayments are the regular payments made to your lender to pay back your mortgage. These repayments typically include:
Principal: the amount you borrowed
Interest: the cost of borrowing that amount
Depending on your loan, your repayments may include both, or interest only for a period.
How do home loan repayments work?
Your lender structures your repayments over the loan term, commonly 25 to 30 years.
At the start of your loan, more of each repayment goes towards interest. Over time, this shifts so more goes towards reducing your loan balance. This is known as amortisation. What factors affect your home loan repayments? Several factors influence how much you repay, here’s how each could potentially affect your repayments:
Factor | How it affects your repayments |
Loan amount | Larger loans generally mean higher repayments |
Interest rate | Higher interest rates increase repayment amounts; comparison rates include certain fees and charges |
Loan term | Longer terms lower repayments but increase total interest |
Repayment type | Interest only lowers short-term repayments but may cost more long term |
Repayment frequency | More frequent repayments may reduce interest over time |
Offset/redraw | Can reduce interest charged and total loan cost |
General information only. The impact of each factor will vary depending on your individual loan and lender.
Understanding these factors can help you better plan and manage your loan.
How are repayments calculated?
Lenders generally calculate repayments using a standard formula based on your loan amount, interest rate, and loan term. The goal is to fully repay the loan by the end of the term.
Rather than calculating this manually, many borrowers use a mortgage repayments calculator to estimate costs quickly.
Example: For a $500,000 loan at an interest rate of 6%, monthly repayments would be approximately $2,998. Of this, around $2,500 would go towards interest, while $498 would be applied to reducing the principal. Over time, this balance gradually shifts, with a larger portion of each repayment going towards paying down the principal rather than interest.
Using the same loan amount, here’s how estimated monthly repayments can vary with different interest rates.
Interest rate | Estimated monthly repayment* |
5.50% | ~$2,840 |
6.00% | ~$2,998 |
6.50% | ~$3,160 |
You can calculate what your repayments could look like using Aussie’s Mortgage Repayments Calculator.
Figures are illustrative only, assume principal and interest repayments over a 30-year term, and do not reflect current rates. Calculator results are estimates only and do not constitute a quote or loan offer. Actual repayments will vary depending on your loan structure, interest rate and lender.
What are the different repayment types?
There are two main types of home loan repayments available; Principal and Interest (P&I), and interest only (IO). The type you choose will depend on your situation.
Principal and Interest: With P&I repayments, you repay both the loan amount and interest rate charged by the lender.
Interest Only: IO repayments require the borrower to only pay off the interest accrued on a home loan for a set period. This usually reverts to principal and interest repayments, once this fixed period is over. Eligibility for IO repayments varies across borrowers.
Example: For a $500,000 loan at an interest rate of 6.50%, repayments on a P&I basis would be $3,160 per month. If the loan were structured as IO, the monthly repayments could potentially be lower, at around $2,708.
While interest-only repayments can ease cash flow in the short term, they typically result in higher overall costs over the life of the loan, as the principal balance remains unchanged during the interest-only period.
Figures are illustrative only and assume a 30-year loan term. Interest-only periods are typically limited and may result in higher repayments once the period ends.
How often can you make repayments?
Home loan repayments can be made weekly, fortnightly, or monthly, depending on your lender.
If you’re on a variable interest rate, you can often make extra repayments, depending on your loan term.
If you’re on a fixed rate home loan, extra repayments may be limited, depending on your loan terms.
Variable loans usually offer more flexibility for extra repayments, offset and redraw, while fixed loans often limit extra repayments and may restrict offset/redraw, with break costs potentially applying.
Example: For a $500,000 loan at a 6% interest rate, monthly repayments would be approximately $2,998, while fortnightly repayments would be around $1,499.
Fortnightly repayments can result in the equivalent of an extra monthly repayment each year, which may help reduce the overall loan term and interest paid over time.
Frequency | Repayment | Total per year |
Monthly | ~$2,998 | ~$35,976 |
Fortnightly | ~$1,499 | ~$38,974 |
Figures are illustrative only, assume principal and interest repayments over a 30-year term at a 6% interest rate. Actual repayments and totals will vary depending on your loan and lender.
How to reduce your home loan repayments
In the current RBA cash rate environment, with ongoing cost-of-living pressures, you may be feeling the pinch on your home loan repayments and may be considering ways to help reduce your monthly cost.
If you need to decrease your repayment amount, there are a number of different ways to do this.
Refinance to a different loan
If you’re able to access a different rate that may better suit your situation , refinancing could potentially help reduce your repayments and ease pressure on your budget.
It is something you may want to consider every few years as your financial situation changes or to check whether your rate is still competitive.
Doing so will also allow you to:
Switch between fixed, variable and split rates
Switch lenders
Access equity and loan features like an offset account
However, if your goal is to save money and improve cash flow, it’s important to weigh up the costs involved, such as application and establishment fees, valuation costs, break fees on fixed loans, and potentially Lenders Mortgage Insurance (LMI), against the savings to make sure it’s worth it.
Negotiate a lower rate with your lender
You may not need to refinance to get a better deal. In some cases, you can negotiate a lower interest rate directly with your current lender, especially if they're offering a more competitive rate to new customers.
You may be in a stronger position to negotiate if you have a good credit history, make repayments on time, and have built up at least 20% equity in your home (a loan-to-value ratio below 80%). Lenders are typically more willing to offer better rates to borrowers they see as low risk.
Any changes are subject to lender approval and eligibility.
Consider a repayment pause or hardship support
In certain circumstances, your lender may allow you to temporarily reduce or pause your repayments through a repayment holiday.
This is usually reserved for specific situations, such as maternity leave or time off work due to illness or injury, and is usually limited to a set period, depending on the lender.
A repayment holiday or hardship arrangement itself doesn’t automatically affect your credit score if it’s formally agreed with your lender and managed correctly. However, missed repayments or defaults outside of an agreed arrangement may negatively impact your credit history.
It’s worth weighing whether this option will benefit you in the long run, or if alternatives like refinancing or negotiating a better rate may be more suitable.
If you’re considering this option, it may help to speak to an Aussie Broker, who can help you review all your options.
How to pay off your loan faster
Paying off your home loan faster could help save thousands in interest, in certain scenarios.
If your goal is to reduce interest and pay off your loan sooner, you could consider:
Strategy | How it helps |
Extra repayments | Reduces principal faster |
Fortnightly repayments | Adds an extra repayment each year |
Offset account | Reduces interest charged |
Keep repayments steady | Maintain higher repayments when rates drop |
Example: On a $500,000 loan at 6% over 30 years, standard repayments would be $2,998 per month. By contributing an additional $200 each month, you could potentially save tens of thousands of dollars in interest and shorten the length of your loan.
Figures are illustrative only, assume principal and interest repayments over a 30-year term at a 6% interest rate. Savings will vary depending on your loan, interest rate and repayment behaviour.
How offset accounts and redraw affect your repayments
Offset and redraw features can help reduce interest, but they work differently:
An offset account is a separate account linked to the loan. Your savings reduce the interest charged on your loan balance
A Redraw facility allows you to access extra repayments you have already made into the loan
Example: If you have a $500,000 loan and $20,000 in offset, interest is calculated on $480,000. A redraw facility works differently but achieves a similar outcome by allowing you to access extra repayments you’ve already made.
The key difference is how the benefit is used: you can either keep repayments the same and pay off your loan sooner, or use the interest savings to ease cash flow.
In most cases, keeping repayments unchanged maximises the benefit, as reduced interest works in your favour over the life of the loan.
Example is simplified for illustration purposes and does not include fees, loan features or compounding impacts. Actual interest savings will vary.
What happens when your fixed rate ends?
When a fixed rate ends, your loan usually reverts to a variable rate. This can lead to higher repayments, sometimes referred to as “repayment shock”.
Example: On a fixed rate of 2.50%, compared to a new variable rate of 6.00%, repayments may increase significantly once the fixed term ends.
This is also a key opportunity to review your loan and consider refinancing. Switching lenders or negotiating a new rate may help you avoid paying more than you need to and better align your loan with your current financial situation.
Rates used are for illustrative purposes only and do not reflect current or future market rates. Actual changes will depend on your lender and loan terms.
What happens if you miss repayments?
If you miss a single repayment, lenders typically give you the chance to catch up and repay it, as long as you do so as quickly as possible.
You may be charged a fee as a result, but if you’re able to repay it quickly and continue making future repayments on time, you’ll be back on track.
If you default on your repayments, you’ll likely be charged additional fees and interest, as well as have this recorded on your credit file. Here is what typically happens:
Repayment history information is typically reported monthly and shows whether payments are up to date. Defaults are generally listed once a debt is at least 60 days overdue and required notices have been issued.
A repayment can be recorded as missed on your credit report if it’s more than 14 days overdue.
Repayment history information is generally retained for up to two years.
Continually missing your repayments may lead to you defaulting on your loan and losing your property. A default, as well as any credit enquiries, court judgments and summons, will stay on your credit report for a period of 5 years.
Before enforcement, a lender may issue formal notices outlining timeframes to remedy the arrears
If you fail to do this, they will issue a Statement of Claim to notify you of their plans to repossess your property before doing so.
If you feel you’re struggling with your home loan or experiencing mortgage stress, it’s best to talk to a licensed financial adviser or your broker for guidance.
If you have any questions about your mortgage or property, reach out to an Aussie Broker who will be happy to help.
Signs of mortgage stress
You may be experiencing mortgage stress if:
You are struggling to cover everyday expenses
You are relying on savings to meet repayments
You are only making minimum repayments
You are falling behind on bills
Speaking with a broker early on can help you understand your options before things become more difficult to manage.