How to Calculate Your Mortgage Repayments in Australia

Understanding your mortgage repayments before you commit is one of the most important steps in the home-buying process. A small difference in interest rate or loan term can mean thousands of dollars over the life of a loan. This guide walks through how repayments are calculated and what factors affect your monthly bill.

How Mortgage Repayments Are Calculated

Lenders use a standard amortisation formula. Each repayment covers both interest on the outstanding balance and a portion of the principal. In the early years of a loan, the split heavily favours interest — as you pay down the principal, more of each repayment goes toward the loan balance itself.

Typical Monthly Repayments (2025–26 Rates)

Based on 30-year principal & interest loans. Rates are illustrative — check with your lender for current rates.

Fixed vs Variable Rate Loans

Variable Rate

Your interest rate (and repayments) move with the RBA cash rate and lender decisions. Variable loans typically offer more flexibility — including the ability to make extra repayments and access offset accounts — but your repayment amount can change.

Fixed Rate

Your rate is locked for a set period (typically 1–5 years). Repayments are predictable, which helps with budgeting. However, you often can't make extra repayments above a limit, and breaking a fixed loan early can trigger significant break costs.

Split Loans

Many borrowers split their loan — fixing part for certainty and keeping part variable for flexibility. A 50/50 or 60/40 fixed/variable split is common.

The Power of an Offset Account

An offset account is a transaction account linked to your home loan. The balance in the offset account is subtracted from your outstanding loan balance when interest is calculated. If you have a $600,000 loan and $50,000 in your offset, you only pay interest on $550,000.

Over a 30-year loan, even a modest offset balance can save tens of thousands in interest and shave years off your loan term.

Borrowing Capacity — What Lenders Look At

Australian lenders assess your borrowing capacity using a serviceability buffer — typically 3% above the loan's interest rate (as required by APRA). This means if the actual rate is 6%, they assess your ability to repay at 9%.

Key factors affecting borrowing capacity:

• Gross income (salary, rental income, investment income)
• Existing debts and credit card limits
• Number of dependants
• Living expenses (HEM benchmark or declared expenses, whichever is higher)
• Employment type (PAYG vs self-employed)

Tips to Reduce Your Repayments

• Save a larger deposit — Reduces your loan principal and eliminates LMI above 20%.
• Choose a longer loan term — 30 years vs 25 reduces monthly repayments (but increases total interest paid).
• Make extra repayments early — Every extra dollar paid in the first years saves significantly on total interest.
• Refinance when rates improve — Australians who refinance every 3–4 years typically pay less over the life of their loan.
• Use an offset account actively — Keep your savings in an offset account rather than a separate savings account.