Available repayment options
How to compare repayments options
How to work out repayments
Home loan fees and descriptions
What to do if you can't meet repayments
Home loans fees and repayments options will determine how quickly you repay your home loan, and the total cost of your home loan over the full term. Once you’ve secured a home loan and purchased a property, you’ll make regular repayments to your lender until you reduce the loan amount to zero.
In this guide you will learn:
- The types of home loan repayments options available
- How to compare repayment types
- How to work out the total cost of your home loan
- Home loan fees you may be charged
- The steps to take if you can't meet repayments
- How to repay your home loan faster
Home loan repayment options
Most home loan repayments are made up of three key components:
- Principal - The amount of money you borrow from your lender
- Interest - Charged by your lender for borrowing money
- Fees - Charged for the administration of your loan by your lender
The higher your principal, interest rate and fees are - the bigger your home loan repayments will be. Learn more about home loan interest rates.
The loan term (the period over which you’re required to repay your loan) is another key factor which can influence the cost of your repayments. The most common loan term is 30 years but they can vary from five to 40 years or more.
Home loan repayment terms vs total interest vs repayment amounts
|Shorter Term||Longer Term|
|Total Interest Paid||Lower||Higher|
Principal and interest home loan repayments
Most home loans will be structured to include principal and interest repayments. This is often the simplest way to repay a home loan, as repayments reduce the principal amount while repaying any accrued interest. Usually, these loans will have a term of 25 or 30 years, after which the loan will be repaid and the principal reduced to $0.
Repayments may be higher than if you were to only make interest repayments, but your loan term will usually be shorter and you’ll pay less interest over the life of your loan. For the vast majority of borrowers, this is the most suitable option.
Principal and interest home loan repayments pros and cons
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Interest-only home loan repayments
Interest-only home loan repayments allow you to only pay interest on your loan for a set period of time - usually one to five years. This means you won’t make any repayments toward the principal and your loan amount will not decrease during the interest-only period.
Learn more about interest-only home loans.
Interest-only home loan repayments pros and cons
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It’s important that you’re prepared for the end of the interest-only period of your loan. The increase in repayments catches some borrowers off guard and can lead to financial difficulty.
How to work out your home loan repayments
The easiest way to estimate how much your home loan repayments will be is to use our home loan repayment calculator. You’ll need to enter in some details, including:
- Loan term
- Loan amount
- Interest rate
- Repayment frequency
- Repayment type
The loan repayment calculator will then provide:
- Regular repayment amount
- The total cost of the loan
- Total interest payable
Your monthly repayment amount is useful for getting an idea of whether or not you can afford to make home loan repayments.
The total interest payable figure will give you an idea of the cost of borrowing money - and how much you’ll save if you shorten your loan term, secure a lower rate or decrease your principal amount.
Working out the total cost of your home loan
When taking out a home loan you should always know its true cost. That includes:
- The monthly repayment amount
- The total interest payable
To give you an idea of how much your home loan might cost we’ve prepared the table below. As you can see, increasing your monthly repayment amount can significantly decrease the total interest paid and loan term.
Home Loan Repayment Amounts vs Total interest
|Home Loan 1||Home Loan 2||Home Loan 3|
|Term||10 years||20 years||30 years|
|Total Interest Paid||$79,364||$165,517||$258,887|
Home loan fees
The total cost of your home loan is mainly determined by your interest rate and loan amount, but fees can also cost you a chunk of change. Despite that, many borrowers aren’t aware of all the fees their lender is charging them.
To make sure you know the true cost of your home loan, check your loan’s product disclosure statement, which will include details of all fees.
When refinancing or applying for a new home loan you should always look at the comparison rate, not the interest rate. The comparison rate expresses the total cost of the home loan, including fees.
Home Loan Fees Amounts and Descriptions
|Application fees||$100 to $600||Covers cost of time reviewing the application.|
|Search processing fees||$50||Covers cost of time your lender spends performing title searches or other searches related to your application.|
|Monthly service fees||$15||Covers cost of time your lender spends on administrating your loan.|
|Annual fees||$400||Often charged as part of package home loans which include special discounts.|
|Late payment fees||$20||Charged for late payment.|
|Portability fees||$150 to $250||Charged to allow the borrower to keep the same home loan while switching the property |
(i.e. when buying a new home).
|Exit fees||Varies depending on home loan amount ||If you took your home loan out before 1 July 2011 you may be charged a fee for exiting your loan |
(i.e. switching to another lender).
|Early exit fees||$160 to $350||Charged if you pay your home loan in full within a specified number of years.|
|Discharge fees*||Average $255.04
|Charged when you repay your mortgage in full.|
|Re-draw fees||$50||Charged when a borrower uses a redraw facility.|
|Lender's Mortgage Insurance (LMI)||$1,000 to $30,000+||A one-off cost charged by the lender to protect them in the event that the borrower can not make repayments. |
Usually only charged when borrowers apply with low deposits.
If a loan has a low interest rate and a high comparison rate that usually means it includes high fees.
If you can’t meet your home loan repayments
If you can’t afford to make your home loan repayments you can get help. Struggling to pay your mortgage can be stressful so remember to take care of yourself and always ask for help if you need it.
Here are your options:
- Contact your lender and ask for a hardship variation. Your lender may agree to reduce your repayment amount until you can get back on track (some lenders are offering 6-month repayment holidays for borrowers affected by Coronavirus).
- Seek independent financial advice. If you don’t already have an adviser, you can use the free Financial Information Service provided by the Australian government.
- Share your problems with friends and family. Even if they aren’t able to help financially, their support will be valuable.
It’s important that you stay in close contact with your lender during this time, and work with them to solve the problem. If you ignore the problem your lender will take the following steps:
- Issue a default notice
This is a notice from your lender informing you of the overdue repayment and requesting that you pay that amount plus any usual repayments. You should never ignore a default notice. If you can’t afford to pay, contact your lender and ask for help, and seek independent financial advice.
- Serve you with a statement of claim
This is the start of legal action against you to reclaim the entire amount of the home loan. If you do nothing the lender can repossess your property.
Your lender may get a court order to repossess your home. You will be evicted and your lender will sell your home to recoup their losses. If your lender is not able to recoup the full amount of your home loan by selling your home you may have to keep making repayments.
How to pay off your home loan faster
When you own a home mortgage repayments take up a large proportion of your take-home pay. Paying your home loan off sooner will free up extra cash and give you more financial freedom, as well as reducing the total amount you spend on interest.
Making a few small changes to your home loan and repayments could help you make it happen.
- Increase your repayment amount
The most effective way to pay off your mortgage faster is to increase your monthly repayments. Paying as little as an extra $100 each month could save you thousands and shave years off your loan.
- Switch to fortnightly repayments
Most home loan repayments are monthly by default. If you halve your monthly repayment and make it fortnightly, you’ll end up paying your loan off faster.
- Make lump sum repayments
If you get a windfall, like a bonus at work or an inheritance, consider making lump-sum payments to your home loan. This could make a significant difference in the total cost of your loan.
- Refinance for a better deal
Refinancing is a process where you take out a new home loan and pay off your old loan. The most common reasons for doing this are to secure a lower interest rate and/or fees, or to switch to a loan structure that’s more suitable.
Refinancing for a better deal can be a great way to reduce the costs of your loan and pay it off quicker. Learn more about how to refinance home loans.
- Use an offset account
An offset account is a savings or transaction account linked to your home loan. When you link an offset account to your home loan interest is calculated on the home loan principal, minus whatever amount is in your offset account. This could help you reduce the interest payable and pay your loan off faster.
Here’s an example:
Home Loan Offset Account Example
|Loan term||30 years|
|Offset account balance||$100,000|
|Total Interest Savings||$51,777|
- Use an adviser
Home loans can be complicated and confusing, but they needn’t be. If you need a hand making your home loan repayments and paying your loan off quicker, it’s a good idea to speak to an independent financial adviser.
These experts are trained to advise you on the most suitable loan structure and products for your situation, help you to create a budget and more.
Once you’ve secured a home loan and purchased a property, you’ll start making home loan repayments until you’ve paid the loan off. Your repayments will be monthly or fortnightly and they’ll usually consist of three key components:
- Principal repayments
- Interest repayments
- Home loan fees charged by your lender
The vast majority of home loans include principal and interest repayments, as this type of repayment enables you to reduce your loan principal and repay your loan over time.
You may opt for an interest-only home loan during new home construction, bridging finance or lifestyle changes. Investors may also choose to only make interest repayments due to tax benefits. However, this type of home loan can be risky and will not enable you to reduce the principal amount.
Fees are another part of every home loan that you should be wary of. Always refer to the comparison rate (interest rate + fees) when choosing a home loan, and check the loan’s product disclosure statement which should include details of all fees.
If you’re struggling to make home loan repayments know that there is help available to you, and never ignore your lender when they contact you to ask for repayment.
On the other hand, if you’re keen to pay your home loan off as fast as possible a few small changes could make all the difference. Increasing your repayments, refinancing for a better deal and using an offset account are just a few of your options.
Home Loan Fees & Repayment Options
What are home loan principal and interest repayments?
Your home loan’s principal is the amount your borrowed - interest is the fee charged by your lender. Most home loans require that you make both principal and interest repayments.
Can I make extra home loan repayments?
Yes, you can make extra home loan repayments. This is a great way to pay your home loan off faster and reduce the total amount of interest you pay. However, some lenders will charge you fees if you make extra home loan repayments if your loan has a fixed interest rate.
What if I can’t afford to pay my mortgage in Australia?
If you can’t afford to pay your mortgage seek financial advice and support immediately and contact your lender. Your lender may reduce the amount of your home loan repayments to help you until you’re in a better financial position. In some cases banks may even allow a mortgage repayment holiday.
What is a mortgage repayment holiday?
A mortgage repayment holiday is a pause on your home loan repayments for a set period of time. During this time you will still be charged interest on your loan and your loan amount may increase as a result. Usually, lenders only offer these to borrowers affected by exceptional circumstances, such as injury, illness or job loss due to an event like COVID19.
How can I repay my mortgage faster?
There are several ways to repay your mortgage faster. These include: Making extra repayments Halving your monthly repayment and making it fortnightly Making lump sum repayments Refinancing for lower fees and/or interest rates Using an offset account. Paying your mortgage off faster could save you thousands in total interest costs and give you better financial freedom later in life.