How do you calculate monthly interest on a mortgage?

You can calculate a mortgage's monthly interest by multiplying the percentage rate of the interest to the outstanding loan amount and dividing it by the number of months in a year. For example paying off a 600,000 loan per month with 3% interest: (AU$600,000 x 0.03) ÷ 12 = AU$1,500

What drives mortgage rates up or down?

One factor that drives mortgages rates up or down is when there are more homes built and/or resold. Buyers tend to apply for home loans when there has been an increase in homes being sold. Fewer homes on the market could mean a decrease on mortgage demand. This relationship of supply and demand drives mortgage rates up and down.

How is your home loan interest rate calculated

Lenders calculate your home loan interest daily and charge you at the end of every month. Knowing how your home loan interest is calculated can help you work out better ways and capabilities of repayment thus having you pay off your loan sooner.

Find out how home loan interest is calculated and learn key factors that can affect its price by reading below.

Home Loan Interest Calculation

Your lender takes the outstanding loan balance at the end of each day, multiplies it by your home loan’s interest rate, then divides that result by the number of days in the year; which is 365 days or 366 days if it's a leap year.

Here is an example:
If you have an outstanding home loan amount of AU$600,000 and the interest rate applied is at 3%:

(AU$600,000 x 0.03) ÷ 365 = AU$49.31

A total of AU$49.31 would be your daily interest rate which is then added together and charged to your account at the end of each month.

You can access our home loan calculator to get an exact interest amount taking into consideration your applied loan term and payment frequency.

Factors that Affect the Interest Charged on your Home Loan

Here are some key factors that can affect the price of the interest rates you pay on your home loan:

Amount of the Loan

Although some banks could offer discounted interest rates on high amount loans, the total price of your loan could have something to do with your interest calculation. The larger amount you borrow the higher interest you would be charged.

Term of the Loan

The length of the time you choose to pay off your loan can also affect the interest. In most cases, a shorter loan term has a lower interest charge, but has higher monthly payments.

Repayment Frequency

In some cases, the more frequent your repayments are, the less interest you will have to pay. Most banks and lenders allow you to choose between weekly, fortnightly and monthly repayments so it's important to you choose the schedule most suitable for you.

Down Payment Amount

The amount of the down payment you make could also impact your loan interest. In most cases, a larger down payment of 20 percent or more could result in a lower interest rate.

How is your Home Loan Interest Rate calculated?