Most home loan repayments are made up of three key components:
The higher your principal, interest rate and fees are - the bigger your home loan repayments will be.
Loan term, or 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.
|Shorter loan term||Longer loan term|
Total interest paid over term
Monthly repayment amount
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.
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.
When taking out a home loan you should always know its true cost. That includes:
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 1||Home Loan 2||Home Loan 3|
Home loan amount
Monthly repayment amount
Total interest paid
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.
$100 to $600
Covers cost of time reviewing the application.
Search processing fees
Covers cost of time your lender spends performing title searches or other searches related to your application.
Monthly service fees
Covers cost of time your lender spends on administrating your loan.
Often charged as part of package home loans which include special discounts.
Late payment fees
Charged for late payment.
$150 to $250
Charged to allow borrower to keep the same home loan while switching the property (i.e. when buying a new home)
Vary 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.
Average $255.04 and Maximum $1,068
Charged when you repay your mortgage in full.
Charged when a borrower uses a redraw facility.
Lender’s mortgage insurance
From $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 to borrowers with low deposits.
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:
It’s important that you stay in close contact with your lender during this time, and work with them to solve the problem.
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.
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.
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.
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.
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.
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.
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.
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.
Offset account balance
Interest payable on
Total interest savings over the life of the loan
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 advisor.
They’ll be able to advise you on the most suitable loan structure and products for your situation, help create a budget to stick to 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:
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.
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.
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.
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.
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.
There are several ways to pay your mortgage off faster. These include:
Paying your mortgage off faster could save you thousands in total interest costs and give you better financial freedom later in life.
Money.com.au want to make managing money easy and fun! By giving Australians simple tools so they can make the best decisions they can about their money.
We understand that the world of finance is complex, and offer free, extensive guides on Personal Loans, Car Loans and Business Loans, along with tools like our Budget Planning Spreadsheet to help you better manage and understand personal finance.
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.