How do home loan repayments work?
Home loan repayments are usually comprised of a principal portion and an interest portion.
- Principal: This is the amount you borrow.
- Interest: This is the cost from your lender to borrow the money.
You may have the option to choose a home loan with both principal and interest repayments, or interest-only home loans that include a period where you only pay the interest.
How to calculate your home loan repayments?
There are a several factors that influence your home loan repayments. To use the Home Loan Repayment Calculator, there are key factors that you will need to consider to provide the most accurate estimate of your mortgage repayments. These include:
- Loan Amount
- Loan term
- Interest rate type: Fixed or variable rate
- Repayment type: Principal and Interest (P&I) or Interest Only (IO)
- Product: The product that suits your needs.
- Extra Repayments: Any repayments that you may made over your minimum monthly repayment
Keep in mind that the interest rates in the calculator are subject to change, which can impact on repayment amounts. For a variable rate loan, the interest rate will be subject to change throughout the term of the loan. For a fixed rate loan, once the fixed rate period expires, the loan reverts to a variable rate loan and repayment amounts may change. The repayment calculator doesn’t include all interest rates, fees and charges.
FAQs
With an interest-only loan, you only pay the interest on the amount you have borrowed.
These interest-only loans are for a set period (for example, five years) after which the loan changes to a principal & interest loan.
To avoid paying Lenders Mortgage Insurance (LMI), borrowers need a 20% deposit in most cases.
To calculate your interest, you need to convert the interest rate to a decimal by dividing the percentage by 100. Multiply your loan balance by the decimal interest value to get the annual interest charge.
You can work out the daily interest cost by dividing the annual interest cost by 365 (days in the year). Multiply the daily interest charge by the number of days in the month to get your loan’s monthly interest charge.
In addition, many home loans come with product features like offset sub-accounts that help reduce your interest paid, allowing you to pay down more of your principal and take years off your home loan.
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