Australian Mortgage Calculator

Understanding Mortgage Repayments in Australia

A mortgage, or home loan, is typically the largest financial commitment an Australian will make. The monthly repayment on a mortgage is determined by three fundamental variables: the loan amount (the property price minus your deposit), the interest rate, and the loan term (usually 25 or 30 years). This calculator uses the standard amortisation formula to compute equal monthly repayments that cover both principal reduction and interest charges over the full loan term.

In the early years of a mortgage, the majority of each monthly repayment goes toward interest rather than reducing the principal balance. For a $600 000 loan at 6.2% over 30 years, the monthly repayment is approximately $3 676. In the first month, approximately $3 100 of that payment is interest and only $576 reduces the principal. By the final year of the loan, nearly the entire payment goes toward principal. This front-loading of interest is why making extra repayments early in the loan term produces dramatically better outcomes than extra repayments made later.

The total cost of a mortgage over its full term can be startling. The same $600 000 loan at 6.2% over 30 years costs approximately $723 000 in total interest, meaning you pay $1 323 000 in total for a $600 000 loan. Reducing the interest rate by just 0.5% (from 6.2% to 5.7%) saves approximately $65 000 in total interest over 30 years, while shortening the term from 30 to 25 years saves approximately $136 000 in interest but increases monthly repayments by about $400.

Current Mortgage Rate Environment in Australia

Mortgage interest rates in Australia are heavily influenced by the Reserve Bank of Australia's (RBA) cash rate target, which is the benchmark interest rate set by the RBA Board at its monthly meetings. As of 2025, the cash rate stands at 4.10% following a series of increases from the historical low of 0.10% reached during the COVID-19 pandemic. Variable mortgage rates from major banks typically sit 1.5% to 2.5% above the cash rate, placing average variable rates in the range of 5.8% to 6.5%.

Fixed rates, which lock in a rate for one to five years, have fluctuated significantly. During the pandemic, some lenders offered fixed rates below 2%, but these have since reverted to levels broadly comparable with variable rates. The choice between fixed and variable depends on your risk tolerance, the current rate environment, and whether you value the flexibility features that come with variable loans (such as offset accounts and unlimited extra repayments).

When comparing rates between lenders, the comparison rate is more informative than the headline rate. The comparison rate includes most fees and charges associated with the loan, giving a truer picture of the total cost. A loan advertised at 5.89% might have a comparison rate of 6.15% after accounting for annual fees, establishment fees, and ongoing charges. The comparison rate is required by law to be disclosed alongside the headline rate in all advertising.

Lenders Mortgage Insurance (LMI)

If your deposit is less than 20% of the property value (meaning your Loan-to-Value Ratio exceeds 80%), most lenders require you to pay Lenders Mortgage Insurance. LMI protects the lender, not you, against the risk of default. Despite protecting the lender, the cost is borne by the borrower and can be substantial.

On a $750 000 property with a 10% deposit ($75 000, LVR of 90%), LMI can cost between $15 000 and $30 000 depending on the lender and insurer. This cost is typically added to the loan amount, increasing the total debt and monthly repayments. On the same property with a 15% deposit (LVR 85%), LMI drops to approximately $8 000 to $15 000. With a 20% deposit ($150 000, LVR 80%), no LMI is required.

The financial case for saving a 20% deposit is compelling. Not only do you avoid the LMI cost (which can exceed $20 000), but a lower LVR also qualifies you for better interest rates from most lenders. The rate difference between 90% LVR and 80% LVR can be 0.2% to 0.5%, which saves thousands over the life of the loan. However, in rapidly appreciating property markets, the cost of waiting to save a larger deposit (while property prices rise) may outweigh the LMI cost. This is a judgment that depends on local market conditions and your personal financial situation.

The Impact of Extra Repayments

Making extra repayments beyond the minimum required amount is one of the most effective strategies for reducing the total cost of your mortgage and achieving ownership sooner. Because mortgage interest is calculated on the outstanding balance, every extra dollar you pay reduces the balance on which interest accrues, creating a compounding benefit over time.

Based on a $600 000 loan at 6.2% over 30 years. Figures are approximate.

Offset accounts provide a similar benefit. An offset account is a transaction account linked to your mortgage where the balance offsets the outstanding loan for interest calculation purposes. If you have a $600 000 mortgage and $50 000 in your offset account, interest is only calculated on $550 000. The interest saving from the offset is equivalent to earning the mortgage interest rate on your savings, tax-free, which is typically a much better return than a savings account after tax.

First Home Buyer Concessions in Australia

Australian first home buyers may be eligible for several government assistance programs that significantly reduce the upfront cost of purchasing a home.

• First Home Owner Grant (FHOG): Most states offer a one-time grant for first home buyers purchasing or building a new home. The amount varies by state: NSW offers $10 000 for new homes up to $750 000, QLD offers $30 000 for new homes up to $750 000, and VIC offers $10 000 for new homes up to $750 000 (or $20 000 in regional areas).
• Stamp duty concessions: Most states offer reduced or zero stamp duty for first home buyers. In NSW, first home buyers pay no stamp duty on existing homes up to $800 000 and new homes up to $1 000 000. Victoria offers a full exemption for homes up to $600 000 and a sliding concession up to $750 000.
• First Home Guarantee (formerly FHBG): This federal scheme allows eligible first home buyers to purchase with as little as a 5% deposit without paying LMI. The government guarantees the difference between the buyer's deposit and 20%, enabling the lender to waive the LMI requirement. Limited places are available each financial year.
• First Home Super Saver Scheme (FHSSS): You can voluntarily contribute up to $15 000 per financial year (and $50 000 in total) of additional pre-tax super contributions, then withdraw these amounts (plus deemed earnings) to put toward a home deposit. The tax benefit (15% contributions tax versus your marginal rate) effectively boosts your deposit savings by 10% to 30% compared to saving from after-tax income.

Choosing Between Principal and Interest vs Interest-Only

Most owner-occupier mortgages are structured as principal and interest (P&I), where each repayment reduces both the loan balance and covers interest. Interest-only (IO) loans, where repayments cover only the interest for an initial period (typically 1 to 5 years), are more commonly used for investment properties. IO repayments are lower during the interest-only period but the loan balance does not decrease, and once the IO period ends, the P&I repayments are significantly higher because the same principal must be repaid over a shorter remaining term.

For a $600 000 loan at 6.2% over 30 years, the P&I repayment is approximately $3 676 per month. An interest-only repayment on the same loan is $3 100 per month, saving $576 per month during the IO period. However, once a 5-year IO period ends, the remaining $600 000 must be repaid over 25 years, increasing the P&I repayment to approximately $3 934 per month. Over the full 30 years, the total interest on an IO loan (with 5-year IO period) is approximately $90 000 more than a straight P&I loan.

Salary Required for a Mortgage in Australian Cities

The salary required to service a mortgage depends on the property price, your deposit, and the prevailing interest rate. Lenders typically apply a serviceability buffer of 2% to 3% above the actual rate to stress-test your ability to repay if rates rise. Using a 30% of gross income guideline for housing costs and a 6.2% rate with 20% deposit:

Median house prices are approximate as of 2025. Minimum income based on repayments not exceeding 30% of gross income. Individual lender assessments will vary.

Sources

• RBA: Cash Rate Target
• Housing Australia: First Home Guarantee
• MoneySmart: Buying a Home