How Mortgage Repayments Are Calculated in Australia
Parkrise Investments Pty Ltd trading as Purchase Wise (PurchaseWise)
ABN 12 109 927 808 · Responsible publisher: Tony Cowan
Reviewed: June 2026
Key takeaways
- Principal and interest repayments are calculated using a standard amortisation formula based on loan amount, rate per period and number of repayments.
- Early repayments are mostly interest because the outstanding balance is highest at the start — this is normal amortisation.
- True fortnightly and weekly repayments use 26 and 52 periods per year — they are not simply the monthly amount divided.
- Extra repayments reduce the principal and may shorten the loan term, but fixed-rate loans may restrict them.
- Your lender’s figure may differ due to day-count conventions, fees, rounding and rate changes — the loan contract is authoritative.
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Introduction
A mortgage repayment is the amount a borrower pays toward a home or property loan at regular intervals. The repayment amount depends on several factors, including the amount borrowed, interest rate, loan term, repayment type and repayment frequency.
This guide explains how repayments are commonly calculated, including principal and interest loans, interest-only loans, the effect of repayment frequency and how extra repayments may affect a loan.
Important: Mortgage repayment estimates are general calculations only. They do not represent loan approval, lending eligibility, a lender quote or an offer of credit. A lender may calculate repayments differently. Interest rates, fees and lender policies can change.
What Is a Mortgage Repayment?
A mortgage repayment is a payment made to a lender at regular intervals under a property loan agreement. Depending on the loan type and structure, a repayment may include:
- Interest charged by the lender on the outstanding loan balance
- Repayment of part of the loan principal
- Other lender charges where applicable
Under a principal and interest loan, repayments generally reduce both the outstanding principal and interest over time, so the loan balance decreases with each scheduled repayment.
Under an interest-only loan, scheduled repayments during the interest-only period may cover interest only. The principal balance generally does not reduce through scheduled repayments during that period.
Fees and other charges are generally separate from the regular repayment and should be confirmed with the lender.
The Main Factors That Affect Repayments
Several factors influence the size of a mortgage repayment. Understanding these factors can help borrowers compare loan options more effectively.
A lower scheduled repayment does not necessarily mean a lower total loan cost. A longer loan term, for example, can increase the total interest paid even if the individual repayment is smaller.
How Principal and Interest Repayments Are Calculated
Principal and interest repayments are commonly calculated so that the loan is progressively repaid over the selected term. This standard calculation generally assumes:
- The interest rate remains unchanged throughout the term
- Repayments are made on time and in full
- No fees or additional charges are included in the estimate
- No extra repayments, redraws or offset effects are applied unless specifically modelled
In the early years of a principal and interest loan, a larger proportion of each repayment generally goes toward paying the interest charged on the outstanding balance. Over time, as the balance reduces, more of each repayment goes toward reducing the principal.
The exact split between principal and interest in each repayment changes throughout the loan term as the outstanding balance changes. Not every lender uses exactly the same daily or periodic interest calculation method.
Mortgage Repayment Formula
The standard formula used to calculate a principal and interest repayment is:
Formula
Repayment = P × [r(1 + r)ⁿ] ÷ [(1 + r)ⁿ − 1]
Repayment periods per year used by this calculator
Different lenders may use different rounding, timing, day-count or interest-accrual methods, so actual lender figures may vary slightly from this calculator's estimates.
Worked Principal and Interest Examples
The figures below are calculated using the standard amortisation formula. Loan amount: $500,000 · Annual interest rate: 6.00% · Loan term: 30 years · Repayment type: Principal and interest.
Monthly repayment example
Assumes: rate constant at 6.00%, 360 monthly repayments, no fees, no extra repayments, no offset balance, no redraw activity.
Repayment frequency comparison — same loan, same rate, same term
| Frequency | Payments per year | Estimated repayment |
|---|---|---|
| Monthly | 12 | $2,997.75 |
| Fortnightly | 26 | $1,384.41 |
| Weekly | 52 | $692.11 |
Note: Fortnightly and weekly repayments are calculated using the amortisation formula with 26 and 52 periods per year respectively. They are not derived by dividing the monthly figure. Paying half the monthly repayment every two weeks can result in 26 half-payments each year, which is equivalent to 13 monthly payments. That is a different strategy from calculating a loan on a true fortnightly repayment schedule.
How Interest-Only Repayments Are Calculated
A basic interest-only repayment estimate is commonly calculated as:
Interest-only repayment = Loan balance × annual interest rate ÷ repayments per year
Example — $500,000 loan at 6.00% per annum
$500,000 × 6.00% ÷ 12 = $2,500.00 per month
Under this structure:
- The principal generally does not reduce through scheduled interest-only repayments
- The repayment may change if the interest rate changes
- Fees are not included in the basic estimate
- Daily interest calculation and lender timing methods may produce a slightly different actual amount
- At the end of the interest-only period, repayments may rise when principal repayments begin
- Interest-only terms and eligibility vary by lender and borrower circumstances
Principal and Interest vs Interest Only
| Feature | Principal and interest | Interest only |
|---|---|---|
| Scheduled repayment includes | Principal and interest | Interest during the interest-only period |
| Loan balance | Generally reduces over time | Generally does not reduce through scheduled repayments |
| Initial repayment | Commonly higher than interest only | Commonly lower during the interest-only period |
| Total interest | Usually lower if other factors are equal | May be higher over the full loan term |
| Repayment after interest-only period | Continues under the agreed schedule | May increase when principal repayments begin |
| Availability | Subject to lender approval | Subject to lender approval and conditions |
This comparison is general only. Neither repayment type is suitable for every borrower. Confirm which structure is appropriate for your circumstances with your lender or a licensed mortgage broker. Principal and Interest vs Interest Only Home Loans — guide coming soon.
Monthly, Fortnightly and Weekly Repayments
The repayment frequency determines how many scheduled repayments are made each year:
Monthly
12 per year
Fortnightly
26 per year
Weekly
52 per year
There is an important distinction between two different concepts:
- 1A loan calculated on a true fortnightly or weekly schedule, using the amortisation formula with 26 or 52 periods per year.
- 2A borrower paying half the monthly amount every two weeks or one quarter every week as an additional repayment strategy.
The second approach may result in the equivalent of an extra monthly repayment over a year, because there are 26 fortnights in a year rather than 24 half-months. However, this only applies where the lender accepts and applies the payments in that way.
Confirm with the lender how repayment frequency, payment timing, offset balances and extra amounts are applied to the loan. Do not assume that changing repayment frequency alone will automatically reduce the loan term or total interest.
How Extra Repayments May Affect a Loan
Making repayments above the scheduled amount can reduce the outstanding principal more quickly. This may:
- Reduce the outstanding principal faster
- Reduce future interest charged on the lower balance
- Shorten the remaining loan term
- Increase repayment flexibility where a redraw facility is available
The actual outcome will depend on when and how much is paid, how the lender applies the additional amounts, and whether the interest rate changes over time. Consider also that:
- Fixed-rate loans may restrict extra repayments or impose break costs
- Redrawing extra repayments can reduce the benefit achieved
- Offset accounts and redraw facilities are not the same and operate differently
- Tax consequences may arise for investment loans — obtain appropriate professional advice before making extra repayments on an investment property loan
Use the extra repayment feature of our Mortgage Repayment Calculator to model the potential impact of additional payments on your loan estimate.
Why a Lender's Repayment Figure May Differ
A lender's repayment figure may differ from a calculator estimate for a range of reasons, including:
A calculator provides an estimate based on the figures entered and its stated assumptions. The lender's repayment schedule and loan contract are the authoritative sources for the actual repayment obligation.
Costs Not Included in a Basic Repayment Estimate
A basic repayment estimate covers the loan principal and interest only. Many other costs associated with a property loan and property ownership are not included. These may include:
Not every cost applies to every borrower or property. Confirm all costs with your lender, conveyancer and the relevant authorities before making a financial commitment.
Practical Borrower Checklist
This checklist covers general preparation steps only. It does not replace a personalised assessment by a licensed professional.
- 1Confirm the loan amount required.
- 2Check the interest rate and whether it is fixed, variable or split.
- 3Select the loan term.
- 4Compare principal and interest with interest-only repayments where relevant.
- 5Check monthly, fortnightly and weekly estimates.
- 6Review the comparison rate and lender fees.
- 7Ask how the lender calculates and applies interest.
- 8Check restrictions on extra repayments.
- 9Understand offset and redraw features.
- 10Allow for rate increases and repayment changes.
- 11Obtain a personalised lender quote.
- 12Review the loan contract and seek appropriate professional advice before committing.
Frequently Asked Questions
Estimate Your Mortgage Repayments
Use our free Mortgage Repayment Calculator to estimate principal and interest or interest-only repayments using your own loan amount, rate, term and repayment frequency.
Sources and further reading
The following official Australian sources may help you verify or explore these topics further. Always check the current information on the relevant government website, as rules and figures can change.
Written and reviewed by PurchaseWise
PurchaseWise is published by Parkrise Investments Pty Ltd. Responsible publisher: Tony Cowan. Tony has worked in the Australian property industry for many years and is the founder and Managing Director/Licensee of The Property Masters WA. This content is general information only and is not financial, legal, tax or credit advice.
General Information Disclaimer
This guide is published by Parkrise Investments Pty Ltd trading as Purchase Wise (PurchaseWise), ABN 12 109 927 808.
It is provided for general information purposes only and does not constitute financial, credit, legal, taxation or other professional advice. It does not take into account your personal objectives, financial situation, needs or circumstances.
Mortgage repayments, interest charges, fees, loan terms and lender calculation methods vary between lenders and may change over time.
Calculator results and worked examples are estimates only. They do not represent loan approval, lending eligibility, a lender quote or an offer of credit.
Before making a property or financial decision, confirm your circumstances and actual repayment obligations with an appropriate lender, licensed mortgage broker, licensed financial adviser, conveyancer, solicitor or other appropriately qualified professional.
Nothing in this guide excludes any right or remedy that cannot lawfully be excluded under applicable law.
See our full Financial Disclaimer for further information.