How mortgage repayments are calculated
A principal-and-interest mortgage repayment is worked out with an amortisation formula that keeps your payment constant for the whole term. Early on, most of each payment is interest and only a little chips away at the loan; over time that flips, and the principal falls faster. Three inputs drive the number: the loan amount, the interest rate, and the term.
A worked example
On a $600,000 loan at 6% over 30 years, your repayment is about $3,597 a month. Over the full term you'd repay roughly $1.29 million — which means about $695,000 in interest, more than the loan itself. That's why small changes matter so much.
Why rate and term move the needle
Stretching the term lowers the monthly payment but increases total interest, because the debt is outstanding for longer. Shortening it does the reverse. Rate changes compound: a 0.5% rise on that $600,000 loan adds roughly $185 to the monthly payment. And extra repayments are the most powerful lever a borrower controls — adding just $300 a month to the example above pays the loan off about five years early and saves around $145,000 in interest, because every extra dollar comes straight off the principal that interest is charged on.
Interest-only vs principal-and-interest
An interest-only period keeps repayments low by paying none of the principal, which suits some investors but means you owe the same amount at the end and pay more interest overall. Most owner-occupiers are on principal-and-interest so the balance actually falls. An offset account can cut the interest charged without changing your scheduled repayment.
Frequently asked questions
Does paying fortnightly instead of monthly help? Usually yes — paying half the monthly amount every fortnight results in the equivalent of 13 monthly payments a year instead of 12, quietly shortening the loan.
Should I fix my rate? Fixing gives repayment certainty but typically limits extra repayments and charges break costs if you exit early. Many borrowers split between fixed and variable.
What happens when rates rise? On a variable loan your repayment increases (or your term extends). Lenders assess new borrowers with a serviceability buffer precisely to test for this.