Home Loan Repayments: How They Are Worked Out

Your repayment is the number you live with every month, so it's worth knowing where it comes from. This guide shows how a standard principal-and-interest repayment is worked out, runs a few examples side by side, and explains what makes the number go up or down. We checked every official figure on this page on 29 October 2026.

HomeLoansCalculator.au is a general information site run by Dominet BV. This page is general information only and is not financial advice. It does not consider your objectives, financial situation or needs. We are not a lender or a mortgage broker and we don't recommend any loan. Check with a licensed professional or the lender before you act. Figures were checked on 29 October 2026. Read our general information notice. The interest rates in our examples are made up for illustration and are not offers from any lender.

The three numbers that set your repayment

A principal-and-interest loan is paid off in equal regular amounts. Each payment covers the interest charged for that period, and whatever is left over reduces the balance. Moneysmart describes it the same way: you repay the amount borrowed (the principal) plus interest, over an agreed loan term such as 30 years.

Three inputs do most of the work:

• Loan amount. Borrow more and every repayment is bigger, in direct proportion. Double the loan and you double the repayment.
• Interest rate. A higher rate means more of each payment goes on interest. Even small differences matter. Moneysmart says a rate just 0.2% lower could save thousands of dollars over time.
• Loan term. A longer term spreads the principal over more payments, so each one is smaller, but you pay interest for longer.

Then there are smaller things. Ongoing fees add to what leaves your account. Paying fortnightly rather than monthly changes how quickly the balance falls. Offset balances and extra repayments cut the interest charged (we cover those in the offset account guide and the extra repayments guide).

The formula behind the calculator

Most repayment calculators, including the one Moneysmart publishes, use the standard formula for an amortising loan. In words:

1. Turn the yearly rate into a rate per period. For monthly payments, divide by 12.
2. Work out how many payments there are. For 30 years of monthly payments, that's 360.
3. Repayment = loan × periodic rate ÷ (1 minus (1 + periodic rate) to the power of minus the number of payments).

You don't need to do this by hand. Our repayments calculator does it for you. What helps is knowing the assumptions. Moneysmart's calculator, for example, assumes the rate stays the same for the whole loan, compounds interest at the same frequency as your repayments, and leaves out upfront costs such as establishment fees. Real loans don't behave that neatly. Lenders usually work out interest daily, and rates change.

Worked examples

All of these use example figures. The rates are not market rates or offers. They are round numbers picked to show how the maths moves.

Example 1: the base case

• Loan: $600,000
• Example rate: 6.5% a year
• Term: 30 years, monthly repayments

The repayment is $3,792.41 a month. Over 360 payments you would repay about $1,365,267 in total, which means roughly $765,267 in interest, if the rate never changed.

Example 2: a shorter term

Same loan and rate, but 25 years instead of 30.

The repayment rises to $4,051.24 a month, about $259 more. Total interest drops to roughly $615,373. That's around $150,000 less interest for the extra $259 a month. This is the trade-off Moneysmart points to when it suggests choosing the shortest term you can afford.

Example 3: the rate moves

Same $600,000 over 30 years:

A one point rise adds about $403 a month on this loan. That's close to $4,835 a year.

Example 4: a smaller loan

$500,000 at 6.5% over 30 years is $3,160.34 a month. Compare that with Example 1. Borrowing $100,000 less saves about $632 a month at this rate.

Example 5: why early repayments are mostly interest

In the first month of Example 1, interest is $600,000 × 6.5% ÷ 12 = $3,250. Of the $3,792.41 payment, only about $542 reduces the balance. The split slowly flips as the balance falls. That's why Moneysmart notes that extra payments made early in the loan have a bigger effect on total interest.

Monthly, fortnightly or weekly

Moneysmart explains that if you pay half your monthly amount every fortnight, you make the equivalent of 13 monthly repayments a year instead of 12, because a year has 26 fortnights.

Example 6. Take Example 1 and pay half the monthly amount, $1,896.20, every fortnight instead. If interest is worked out each fortnight at the same example rate, the loan is paid off in about 628 fortnights, which is roughly 24 years and 2 months rather than 30 years. Total interest falls to about $589,000.

Two things to check before you count on that result:

• Some lenders work out a fortnightly repayment by dividing the yearly total by 26, not by halving the monthly figure. That keeps you on the 30 year track, with no time saved.
• Your lender's method of charging interest (usually daily) will give a slightly different answer from any calculator.

What a calculator leaves out

A repayment calculator answers one question: what does this loan cost per period if nothing changes. It doesn't tell you:

• whether a lender will approve you for that amount (see how borrowing power is assessed)
• what the loan costs once fees are counted (see the comparison rate guide)
• what happens when a fixed period ends (see fixed versus variable)
• one-off buying costs such as stamp duty or lenders mortgage insurance

Interest-only loans need a different calculation. During the interest-only period you pay only interest, so in Example 1 that would be about $3,250 a month at the start, and the balance doesn't fall. Moneysmart has a separate calculator for those.

Testing for higher rates

The Reserve Bank's cash rate target was 4.60% from 30 September 2026. Moneysmart's switching guide notes the RBA raised the cash rate four times in 2026 up to that point, in February, March, May and September. Lenders aren't bound to follow the cash rate exactly, but it feeds into variable rates.

So run your numbers at a higher rate as well as today's. Moneysmart's choosing a home loan page suggests working out your costs if rates went up by 3%. On Example 1, a rate 3 points higher (9.5%) would make the repayment about $5,045 a month. If that number would break your budget, it's useful to know now.

What this means for you

• Start with the loan amount, rate and term from a real loan's Key Facts Sheet if you have one. Moneysmart says every lender must use the same Key Facts Sheet layout, so the numbers line up.
• Look at the total interest as well as the monthly figure. A longer term feels cheaper each month and costs more overall.
• Check how your lender sets fortnightly repayments before you assume you'll finish early.
• Run a higher-rate test. If the higher number doesn't fit, look again at the loan size.
• Treat any calculator result as an estimate. Your lender's figures are the ones that count.

You can try your own numbers in our repayments calculator, or go back to the home loan calculators hub.

Frequently asked questions

How do I work out my monthly home loan repayment?

Multiply the loan by the monthly rate (the yearly rate divided by 12), then divide by one minus (1 + monthly rate) raised to the power of minus the number of months. Our repayments calculator does this for you. On a $600,000 loan at an example rate of 6.5% over 30 years, it comes to $3,792.41 a month.

Does a 25 year loan cost much more each month than a 30 year loan?

It costs more each month but less overall. In our example the 25 year loan was about $259 a month dearer and saved around $150,000 in interest. The gap changes with the rate and the loan size.

Will fortnightly repayments pay my loan off faster?

Only if each fortnightly payment is half the monthly amount. That adds up to one extra monthly repayment a year. In our example it cut the term to about 24 years and 2 months. If your lender divides the yearly total by 26 instead, you won't finish early.

Why does my lender's repayment differ from the calculator?

Lenders usually charge interest daily, may round differently, and may add fees. Calculators also assume the rate stays the same for the whole loan. Small differences are normal. Ask the lender to explain any big gap.

Does the RBA cash rate set my interest rate?

Not directly. Moneysmart explains that RBA decisions flow through to home loan rates, but your rate also depends on your lender, your credit history and competition. The cash rate target was 4.60% from 30 September 2026.

Do repayment calculators include stamp duty or LMI?

No. A repayment calculator only covers the loan itself. If LMI is added to your loan, include it in the loan amount. Stamp duty is a separate cost, and Moneysmart notes you typically need to pay it within 30 days of settlement, although the timing depends on your state or territory.