How mortgage repayments are calculated
Australian home loans use a standard principal and interest (P&I) amortisation schedule. Each monthly payment covers the interest accrued on your outstanding balance, with the remainder reducing your principal. Because your balance falls over time, the interest portion shrinks each month — meaning more of your payment goes to principal as the loan matures.
The P&I amortisation formula
M = P × r(1+r)ⁿ ÷ ((1+r)ⁿ − 1)
P = loan amount · r = monthly rate (annual ÷ 12) · n = total months
Repayments at common loan amounts (5.85%, 30 years)
| Loan amount | Monthly repayment | Fortnightly | Total interest | Total repaid |
|---|---|---|---|---|
| $400,000 | $2,360 | $1,474 | $449,600 | $849,600 |
| $500,000 | $2,950 | $1,843 | $562,000 | $1,062,000 |
| $600,000 | $3,539 | $2,212 | $674,040 | $1,274,040 |
| $700,000 | $4,129 | $2,581 | $786,440 | $1,486,440 |
| $800,000 | $4,719 | $2,949 | $898,840 | $1,698,840 |
| $900,000 | $5,309 | $3,318 | $1,011,240 | $1,911,240 |
5.85% p.a. variable, 30-year P&I. Approximate — use the calculator above for exact figures.
How to reduce your total interest
Three strategies reduce the total interest paid on an Australian mortgage:
- Extra repayments — any amount above the minimum goes straight to principal. Even $200/month extra on a $600k loan saves around $45,000 in interest and shortens the term by over 3 years.
- Offset account — a transaction account linked to your loan. Your balance offsets the principal, reducing the interest charged each day. A $20,000 offset balance on a $600k loan effectively means you only pay interest on $580,000.
- Refinancing to a lower rate — reducing your rate by even 0.5% on a $600k loan saves around $1,800 per year. Refinancing costs (discharge fees, new loan fees) typically break even within 2–3 years.