Understanding your mortgage repayments before you commit to a loan can save you years of stress and tens of thousands of dollars. Too many Australian buyers focus only on the purchase price and deposit — and are blindsided when the monthly repayment arrives.
This guide explains how Australian home loan repayments are calculated, how fixed and variable rates compare in the current environment, how an offset account works in practice, and what actually determines your borrowing power in 2026.
Your monthly repayment on a principal and interest (P&I) loan is calculated using a standard amortisation formula. The key inputs are:
In the early years of your loan, the vast majority of each repayment goes toward interest. As the loan matures, more goes toward principal. This is called amortisation — and it's why extra repayments in the early years have such a powerful impact.
Here's what monthly P&I repayments look like at a range of loan sizes and interest rates:
| Loan Amount | 5.5% rate / 30yr | 6.0% rate / 30yr | 6.5% rate / 30yr |
|---|---|---|---|
| $400,000 | $2,271 | $2,398 | $2,528 |
| $500,000 | $2,839 | $2,998 | $3,160 |
| $600,000 | $3,407 | $3,597 | $3,792 |
| $700,000 | $3,975 | $4,196 | $4,424 |
| $800,000 | $4,542 | $4,796 | $5,056 |
| $1,000,000 | $5,678 | $5,995 | $6,320 |
These are approximate monthly repayments for principal and interest loans. Your actual repayment will depend on your specific rate, fees, and loan structure.
Enter your loan amount, rate, and term for a precise monthly and annual repayment figure.
Open Free Mortgage Calculator →This is the most common question Australian home buyers ask — and there's no universal answer. The right choice depends on your financial situation, risk tolerance, and where interest rates are heading.
Variable rate loans move with the RBA's cash rate. When the RBA cuts rates, your repayment falls. When it hikes, your repayment rises. In Australia, the majority of home loans are variable rate.
Advantages:
Disadvantages:
Fixed rate loans lock in your interest rate for a set period — typically 1, 2, 3, or 5 years. Your repayment stays the same regardless of what the RBA does during that time.
Advantages:
Disadvantages:
Many Australians opt for a split loan — fixing part of the loan (for certainty) and keeping the rest variable (for flexibility). A common split is 50/50, though any ratio is possible. This approach balances protection against rises with access to offset and extra repayment benefits.
2026 context: After the RBA's aggressive rate hiking cycle of 2022–2023, rates have moderated. Whether to fix depends on your view of the rate outlook and your personal need for repayment certainty. Speaking to a mortgage broker before deciding is strongly recommended.
An offset account is a transaction account linked directly to your home loan. The balance in the offset account is deducted from your loan balance before interest is calculated each day.
Marcus has a $600,000 home loan at 6.0% and keeps $50,000 in his offset account.
Without offset: interest is calculated on $600,000 → annual interest = $36,000
With $50,000 offset: interest is calculated on $550,000 → annual interest = $33,000
Annual saving: $3,000 — and that's every year he maintains that balance.
Over a 30-year loan, keeping $50,000 in offset could save Marcus over $90,000 in interest and cut years off his loan term.
The key advantage of an offset over making extra repayments is liquidity. Money in your offset is accessible at any time — it functions as a normal bank account. Extra repayments into most loans are locked in (unless your loan has a redraw facility).
| Offset Account | Redraw Facility | |
|---|---|---|
| How it works | Separate transaction account linked to loan | Extra repayments made directly into loan |
| Interest saved | Daily on account balance | Daily on extra repayment amount |
| Accessibility | Instant — it's your bank account | May take 1–3 business days to access |
| Tax (investors) | Interest saved is not assessable income | Redrawing may affect deductibility |
| Fees | Some lenders charge monthly offset fee | Usually free or small redraw fee |
Most Australian home loans are principal and interest (P&I) — meaning each repayment reduces the loan balance while also covering the interest charge. This is the standard for owner-occupiers.
Interest only (IO) loans require you to pay only the interest for a set period (typically 1–5 years). Your repayments are lower, but the loan balance doesn't reduce. At the end of the IO period, repayments jump significantly as you begin repaying principal over the remaining (shorter) loan term.
IO loans are commonly used by investors for cash flow reasons — the interest is fully tax-deductible against rental income. However, they are increasingly restricted by APRA's lending guidelines, and not all lenders offer them freely.
Caution: Interest-only loans look attractive in the short term but the repayment jump at roll-off can be significant. Model the full IO period and P&I rollover before committing to an IO structure.
Borrowing power — the maximum amount a lender will approve — is not simply a multiple of your income. Lenders conduct detailed assessments of your financial position. The key factors are:
Lenders assess your gross income including salary, rental income, investment income, and some government payments. Self-employed borrowers typically need two years of tax returns. Casual and contract workers may have income "shaded" (reduced) in the assessment.
All existing debts reduce your borrowing power — credit cards (assessed at the credit limit, not your current balance), car loans, personal loans, HECS-HELP debt, and other mortgages all count against you.
Since the banking royal commission, lenders scrutinise living expenses more carefully. They use either the Household Expenditure Measure (HEM) benchmark or your actual declared expenses — whichever is higher. Being honest and accurate on your application is essential.
APRA requires lenders to assess your ability to repay at your actual interest rate plus 3%. This serviceability buffer means that even if your loan rate is 6%, the lender will test whether you can afford repayments at 9%. This significantly reduces the maximum amount you can borrow.
A larger deposit doesn't just reduce your loan size — it can also unlock lower interest rates (many lenders price rates based on LVR) and remove the LMI requirement, improving the economics of the loan.
A very rough guide is 5–6x gross income, but this depends heavily on your existing debts, living expenses, deposit size, and the current serviceability buffer. On $100,000 income with no debts and a 20% deposit, you might borrow $450,000–$550,000. Use our mortgage calculator for a more personalised estimate, and speak to a mortgage broker for a formal assessment.
Contact your lender immediately. All Australian lenders have hardship assistance programs, and ASIC requires them to consider reasonable hardship requests. Proactively communicating before you miss a payment gives you far more options than waiting until you've defaulted.
This depends on your interest rate and your expected investment return. If your mortgage rate is 6% and you expect to earn 8% investing, mathematics favours investing — but investing carries risk while mortgage repayments are guaranteed return. Most financial advisers suggest building a buffer first, then considering investment once the emergency fund is solid.
Usually yes, but your lender needs to approve the change and may require a new credit assessment. Switching early from IO to P&I often saves significant interest and reduces risk at the IO rollover point.
Refinancing means moving your loan to a new lender (or renegotiating with your current one). It's generally worth doing when you can secure a rate 0.5% or more lower than your current rate, have enough equity to avoid LMI at the new lender, and plan to stay in the property long enough to recoup the switching costs (typically $1,000–$2,500 in fees).
Mike Backman — Founder of Aussie Property & Crypto Calc. Mike researches Australian property, taxation and personal finance and maintains all calculators using ATO, ASIC, RBA and state government data.
Last updated: 19 July 2026 · About this site · Report an error