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.
For example, if you take out a $100,000 loan, your principal starts at $100,000. If your loan has a 4.01 per cent interest rate, you're paying $4.01 cents annually for every $100 you owe. Because your balance usually decreases over the course of the year, however, you won't pay 4.01 per cent of $100,000, but a slightly smaller amount. That's because interest is calculated based on the balance each month.
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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