Find out with our mortgage repayment calculator
How to calculate home loan repayments
To calculate your home loan repayments, you'll need four things. So to get started, find them out now or work out a rough approximation of what you expect them to be. You'll need:
- Your loan amount
- Interest rate
- The loan term
- Payment frequency
Got all four? Or an approximation of all four? Good! To calculate your home loan repayments, try our mortgage repayment calculator by clicking on the link below.
How to use your interest rate to reduce home loan repayments
There are a number of ways to reduce your home loan repayments. Which will be available to you, will depend on your situation, income and budget. The first way is by comparing finance options and seeking out a home loan with a lower interest rate.
For an example, let's take a typical home loan for a property near Melbourne, the borrowed amount being $750,000. For the purpose of this exercise, we will exclude fees, government charges, etc.
| Loan amount | Loan term | Interest rate* | Fortnightly repayment | Difference |
|---|---|---|---|---|
|
$750,000 |
30 years |
3.50% |
$1,553.70 |
|
|
$750,000 |
30 years |
4.00% |
$1,651.83 |
+$98.13 |
|
$750,000 |
30 years |
5.00% |
$1,857.33 |
+$303.63 |
As you can see, even half a percent can make a big difference to your home loan repayments. In this case, a slightly higher rate means around $100 - $300 extra on every repayment.
*These rates are used for illustrative purposes only, and may not reflect the lowest or highest rate available to you. For information specific to your situation, speak with a finance professional.
How to get a home loan with a lower interest rate
If you've started shopping around for home loans, you'll know that they can come with a range of different interest rates. Some higher. Others lower.
Unfortunately, many Australian buyers go to their bank first for advice. Typically one of the big four, these banks don't necessarily offer the best rates for home buyers.
A better first step is to speak with a home loan broker.
Your home mortgage broker is a specialist in home finance. They have access to a range of lenders and loan products. They can compare a variety of products on your behalf, that could find one with a lower interest rate, fewer fees or more flexible repayment options.
So, before you speak with your bank. Speak with a broker. You may be surprised by what's available.
How to use your loan term to reduce your home loan repayments
Your 'home loan term' is simply the length of time over which you will repay your loan. It's something you'll decide on during the loan application process. In Australia, home loans typically feature a term of:
- 25 years
- 30 years
Your home loan term may be higher or lower depending on your circumstances or preference. However, usually, terms are not under 10 years or above 40 years.
The two important things to remember are:
- The longer your home loan term, the lower your regular repayments
- The shorter your home loan term, the less you will pay overall
Reducing your home loan repayments with a longer term
For this second example, let's return to our home loan of $750,000 for a property near Melbourne. In this instance, though, we'll simply alter the loan term instead of the interest rate.
| Loan amount | Loan term | Interest rate | Fortnightly repayment | Difference |
|---|---|---|---|---|
|
$750,000 |
20 years |
4.00% |
$2,096.40 |
|
|
$750,000 |
25 years |
4.00% |
$1,826.17 |
-$270.23 |
|
$750,000 |
30 years |
4.00% |
$1,651.83 |
-$444.57 |
As you can see above, your choice of loan term can make a significant difference to your repayments.
The downside is that the lengthier the loan term, the more interest you will pay on your home loan overall.
Ideally, you want to select a loan term that is long enough that your home loan repayments are manageable but isn't so long that you pay the maximum amount of interest.
How to use repayment frequency to lower your repayments
The majority of Australian borrowers will repay their repayments at one of three frequencies. Either:
- Weekly
- Fortnightly
- Monthly
The more frequently you pay, the less you pay in each repayment.
Weekly, fortnightly or monthly
The options for borrowers is thus. Pay a smaller portion each week. A moderate amount once a fortnight. Or pay at the end of the month in one larger lump sum.
Which repayment frequency will be right for you will likely depend on your income and cash flow. If possible, match your payment frequency to your pay schedule. That way, you can make your repayment as soon as your pay comes in, thereby making managing your finances easier.
If you have an irregular income, for example, if you're in casual employment or if you're a sole trader, monthly may be better as you can put funds aside, as they become available.
Another thing to consider when comparing weekly, fortnightly and monthly repayments is that generally, interest on mortgages is calculated daily and charged monthly. Therefore, if you make weekly payments you can reduce your balance during the month, so less interest is charged at the end of the month.
How can I reduce my loan amount?
No factor will determine how much you pay in home loan repayments like your choice of loan amount. It's plain, the more you borrow, the more you have to repay,
Here are seven ways that you can reduce your loan amount.
- Save for a larger home deposit
- Choose a home in a less expensive suburb
- Consider a co-borrower
- Buy outside of the city
- Consider an apartment vs a house
Not all these options will be available for all borrowers. However, if you can take advantage of one or more of them, they may help you to reduce your home loan amount and your regular home loan repayments.
"Try our mortgage repayment calculator and get an estimate of your repayments."
Ready to secure a home loan? We could help.
Searching for suitable home finance? At Rapid Finance, our home loan specialists could help you to secure finance that's right for your situation, budget and circumstances - even sourcing suitable bad credit home loans. It's what we do.
Our loan specialists could compare a range of loan products from a variety of lenders to find finance with lower repayment options, fewer fees or more flexible features.
Learn more on our home loans page or call 1300 467 274