A mortgage repayment looks like a single tidy figure on your bank statement, but it's really the answer to a tug-of-war between three things: how much you borrowed, the interest rate, and how long you have to pay it back. Change any one and the number moves — sometimes by more than you'd expect. Here's how the calculation works, so the figure a lender quotes you never feels like a black box.
The repayment formula
Lenders use the standard amortising-loan formula. Every repayment is identical in size, but the split between interest and principal shifts over the life of the loan — heavy on interest early, heavy on principal later.
M = P · r(1 + r)n / ((1 + r)n − 1)
Where:
- M is your repayment each period
- P is the principal — the amount you borrow
- r is the interest rate per period (the annual rate divided by the number of repayments a year)
- n is the total number of repayments over the loan
The one place people trip up is r and n. For monthly
repayments, divide the annual rate by 12 and multiply the loan's years by 12. A 6%
loan means r = 0.06 / 12 = 0.005 per month, and a 30-year loan means
n = 360 repayments.
A worked example
Say you borrow $600,000 at 6.0% over 30 years, repaid monthly. Plug the numbers in and the monthly repayment comes to about $3,597.
Now the part the formula quietly reveals: over the full 30 years you'll repay roughly $1,295,000 — which means about $695,000 of that is interest, more than the original loan. That isn't a reason to panic; it's the reason the levers below matter so much.
How the rate and the term move the number
The same $600,000 loan behaves very differently as you change the two dials you have the least and most control over — the rate (set by the market) and the term (set by you).
| Scenario | Monthly repayment | Total interest |
|---|---|---|
| 6.0% over 30 years | $3,597 | $695,000 |
| 6.5% over 30 years | $3,792 | $765,000 |
| 5.5% over 30 years | $3,407 | $626,000 |
| 6.0% over 25 years | $3,866 | $560,000 |
Two things stand out. A half-percent difference in rate — the kind of gap you might close just by asking your lender or refinancing — swings the repayment by around $200 a month and the total interest by tens of thousands. And shortening the term to 25 years raises the repayment by only about $270 a month yet cuts total interest by roughly $135,000, because you're paying the balance down faster and giving interest less time to compound.
The Australian levers: fortnightly payments, extra repayments and offset
Australian loans give you a few ways to beat the base schedule, and they're worth understanding because they cost nothing to switch on.
Pay fortnightly instead of monthly
If you take your monthly repayment, halve it, and pay that every fortnight, you make 26 half-payments a year — the equivalent of 13 monthly payments, not 12. That extra payment lands entirely on the principal and can shave years off a 30-year loan without you ever feeling a big change. (Make sure your lender genuinely splits the monthly figure and doesn't just recalculate a smaller fortnightly amount.)
Make extra repayments
Because interest is charged on the outstanding balance, every dollar above the minimum saves you future interest. On that $600,000 loan at 6%, adding just $300 a month pays it off in about 24.6 years instead of 30 and saves roughly $147,000 in interest. Variable loans in Australia almost always allow unlimited extra repayments; fixed loans often cap them, so check before you commit.
Use an offset account
An offset account is an everyday transaction account linked to your loan. Its balance is subtracted from your loan balance before interest is calculated, so $30,000 sitting in offset on a $600,000 loan means you're only charged interest on $570,000. Unlike extra repayments, the money stays yours to withdraw at any time — which is why parking your salary and savings in offset is one of the most flexible ways to cut interest without locking the cash away.
Key takeaways
- Repayments come from one formula driven by the loan amount, the periodic
rate, and the number of repayments — get
randnright and the rest follows. - Over 30 years, interest can exceed the amount you borrowed, so small improvements compound into large savings.
- A lower rate or a shorter term both cut total interest sharply; even a 0.5% rate difference is worth chasing.
- Fortnightly payments, extra repayments and an offset account are free levers that can take years off the loan.
Run your own figures — including extra repayments and an amortisation schedule — with the CalcHub mortgage calculator, and check what you can comfortably borrow first with the home affordability calculator.
Interest rates used above are illustrative examples, not current market rates. Always compare live rates from multiple lenders before deciding.