What is a home loan repayment?
Learn what a home loan repayment is, how it works in Australia, and what factors affect your repayments.
A home loan repayment is the regular amount you pay to your lender to repay your mortgage. Each repayment covers two things: the loan principal (the amount you borrowed) and interest (the cost of borrowing).
Your repayment amount depends on four key factors: your loan balance, interest rate, loan term, and whether you choose principal and interest repayments or interest-only payments.
Understanding how repayments work helps you estimate your borrowing costs, compare loan options, and plan your budget. With Unloan, you can estimate your repayments using the Unloan repayment calculator - with no application fees or ongoing fees to factor in.*
What is a home loan repayment?
A home loan repayment is the regular payment you make on your mortgage. If you’re paying principal and interest, it reduces your mortgage balance You can generally choose to pay monthly, fortnightly or weekly.
Unless paying interest only, each repayment covers two components:
- Principal - the portion that reduces the amount you originally borrowed. As your principal decreases, your daily interest charge shrinks too.
- Interest - the cost your lender charges for borrowing the money. Interest is calculated daily on your outstanding balance and charged monthly.
Over time, your repayments gradually reduce the loan balance until the loan is fully repaid. This process is called amortisation.
How are home loan repayments calculated?
Your lender calculates repayments using an amortisation formula based on three main variables:
- Loan amount - the total amount you borrow. A larger loan means higher repayments.
- Interest rate - the annual percentage charged on your outstanding balance. Higher rates increase each repayment.
- Loan term - the number of years to repay the loan. Longer terms lower each repayment but increase total interest paid.
The formula spreads the total cost (principal plus interest) into equal payments over the loan term. In the early years, most of each repayment goes toward interest. Over time, the interest portion shrinks and more goes toward reducing the principal.
Example of a home loan repayment calculation
Say you borrow $500,000 at 6.00% p.a. over 30 years with principal and interest repayments.
Your monthly repayment would be approximately $2,998.
How the repayment breaks down over time
In the early years, most of your repayment goes toward interest. Over time, the balance shifts and more reduces the principal.
Over the full 30-year term (and assuming no change in the interest rate), you’d pay approximately $579,191 in total interest - more than the original loan amount.
With Unloan, there are no application fees or ongoing fees. That means every dollar of your repayment goes toward principal and interest - not lender charges.
What are the different types of home loan repayments?
There are two repayment types: principal and interest (P&I) and interest-only (IO). Most Australian home loans use principal and interest repayments.
Your repayment type directly affects how quickly you build equity and how much total interest you pay.
Principal and interest repayments
Principal and interest repayments reduce your loan balance and cover the interest charged. This is the most common repayment structure for Australian home loans.
Because the balance gradually decreases, the interest portion of each repayment shrinks. More of each repayment goes toward the principal as the loan matures.
Interest-only repayments
Interest-only repayments cover only the interest charged - you don’t pay down any of the principal during this period.
Your loan balance stays the same because no principal is repaid. Interest-only periods typically last 1–5 years.
For example, if you borrow $500,000 at 6% p.a. interest, the interest-only payments would be approximately $2,500 per month.
When the interest-only period ends, repayments increase - often significantly. You now repay both principal and interest over a shorter remaining term.
Comparison of repayment types
Compared to a loan with a period of interest only, making principal and interest repayments means you pay less in total interest.
For a $500,000 loan at 6% p.a. over 30 years, principal and interest repayments are around $2,998 per month, with a total interest of around $579,191.
By comparison, a 5-year interest-only period followed by 25 years of principal and interest repayments would result in a total interest of around $616,452, which is around $37,261 more because no principal was repaid during the interest-only period.
What factors affect home loan repayments?
Four main factors determine your repayment amount:
- Loan amount - borrowing $600,000 instead of $500,000 at 6% p.a. over 30 years adds roughly $598 to your monthly repayment.
- Interest rate - a 0.5% p.a. rate increase on a $500,000 loan adds about $150/month to your repayments.
- Loan term - a 25-year term instead of 30 years increases monthly repayments by roughly $220 but saves over $100,000 in total interest.
- Repayment type - interest-only payments are lower in the short term but cost more over the life of the loan.
Use Unloan’s repayment calculator to model how changes to these factors affect your repayments.
How does repayment frequency affect your home loan?
Switching from monthly to fortnightly repayments is one of the simplest ways to pay off your loan sooner if your lender calculates fortnightly repayments as being half of the monthly repayment amount.
Why fortnightly repayments can save you money
As there are 26 fortnights in a year, making fortnightly repayments could result in making the equivalent of an extra month of repayments each year, depending on how your lender calculates repayments.
Interest on your home loan is calculated daily. By reducing the principal more often, less interest accrues between payments.
Worked example - fortnightly vs monthly repayments
Based on a $500,000 loan at 6.00% p.a. over 30 years.
Can you make extra repayments on your home loan?
Yes. Most variable rate home loans allow you to make extra repayments at any time, with no limit on the amount.
Extra repayments reduce your principal faster. Because interest is calculated daily on the outstanding balance, a lower balance means less interest accrues. Even small extra repayments compound over time.
Worked example - extra repayments of $200/month
Based on a $500,000 loan at 6.00% p.a.
With Unloan, if you’ve made additional repayments on your home loan, above your minimum scheduled repayments, you will be able to access these additional funds at any time through our unlimited redraw facility.
What is the difference between a redraw facility and an offset account?
Both features help reduce the interest you pay, but they work differently.
Please note that Unloan does not offer offset accounts. However, Unloan offers an unlimited redraw facility. There are no processing fees, and no waiting periods. Learn more about Unloan’s redraw.
How do interest rate changes affect your repayments?
If you have a variable rate loan, your repayment amount changes when interest rates move. A rate increase raises your repayment; a decrease lowers it.
On a fixed rate loan, your repayment stays the same during the fixed period - regardless of rate movements.
Worked example - impact of a 0.25% p.a. rate rise
Based on a $500,000 loan over 30 years.
Please note that Unloan does not offer fixed rates. However, Unloan offers a variable rate home loan with an automatic annual loyalty discount that increases over time.
How can a home loan repayment calculator help?
A repayment calculator shows you exactly what your regular repayment will be based on your loan amount, interest rate, and loan term.
Calculators help borrowers:
- Estimate borrowing costs - see how much you’ll pay in total interest over the full loan term.
- Compare loan scenarios - model different loan amounts, terms, and interest rates side by side.
- Understand extra repayment impact - see how an extra $100 or $200/month shortens your loan term and reduces total interest.
Use the Unloan home loan repayment calculator to estimate repayments based on different scenarios.
How Unloan home loan repayments work
Unloan offers variable rate home loans with no application fees and no ongoing fees.*
You can make additional repayments at any time and access your funds through unlimited redraw, with no fees.
Unloan also offers an automatic annual loyalty discount that increases over time, up to 30 years.*
Estimate your repayments with the Unloan repayment calculator or check your borrowing power to see how much you could borrow.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
