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Mortgage repayment calculator and everything you need to know about it - featured image
By Michael Yardney

Mortgage repayment calculator and everything you need to know about it

How much is your mortgage going to cost you? This calculator is a great starting point for anyone looking to take on a new loan.

Let's now look at some information on what a home loan calculator is, how it works and how it can help you determine which is the best home loan for you.

How a mortgage repayment calculator works

A mortgage repayment calculator takes into account a variety of factors to determine what your total repayments will be over the total loan term.

By inputting information into the calculator about the amount of money you want to borrow (the loan amount or Principal amount), total length of the loan, interest rate, loan type (fixed, variable or interest-only), and repayment frequency the home loan calculator can help to give an estimate of what your monthly, fortnightly or weekly repayments could look like.

By adjusting some or all of these pieces of information you can then predict the differences any changes might have on the loan itself.

This can help assist in deciding which type of loan is best suited to you and also give insight into the total interest and repayment you could expect to pay on your loan.

Combining this information with details of your income, living expenses and any debt could also help determine how much you can borrow.

How much interest will I pay on a mortgage?

When you take out a home loan you’ll have to pay back both the amount you borrowed and interest on top of it.

But do you know how much that interest will be?

There are 4 key factors that will determine how much interest you pay and what percentage of your repayment goes on interest.

  • The loan amount/Principal - This is the amount you want to borrow, which is generally the property purchase price minus any deposit saved or charges, such as stamp duty. It goes without saying that the higher the loan amount, the higher the interest.
  • The length/term of the loan - Shorter loan terms will generally mean higher repayments but less interest while longer-loan terms translate to a lower monthly repayment but higher interest due to the longer loan life.
  • Repayment frequency - Monthly, fortnightly or weekly, the payment frequency you choose will depend on your budgeting style and how frequently you receive your salary. However, less frequent repayments lead to more interest because the loan is being paid off slower, whereas, more frequent repayments mean less interest thanks to the effects of compounding.
  • Interest rate - The interest rate on your loan, and any fees and charges, will determine the amount of interest you will pay on your home loan.

How to work out how much interest you’ll pay on a home loan

Here is a simple formula to work out what interest you will pay on your home loan:

  • Divide your interest rate by the number of payments you’ll make in 12 months.
  • Multiply the answer by the balance of your loan. Remember if you are paying off your Principal and interest then your loan balance will reduce with each payment you make.
  • This gives you the amount of interest you pay per month.

How to work out Principal repayments on a home loan

Your Principal repayment is the repayment of the amount you borrowed minus the cost of borrowing it (the interest).

Here is a simple formula to work out an estimated Principal repayment for your home loan term:

  • Subtract Principal payments you have already made from the total amount borrowed.
  • Divide by the number of payments left on your loan.
  • This gives you the total Principal repayment for the remaining payments left on the life of your loan (this does not give you the total amount payable on the loan because it does not take into account interest or any fees associated with the loan).

Do you pay less interest if you pay weekly?

As I mentioned above, it is possible to pay less interest if you pay your mortgage repayments weekly versus monthly.

This is due to the effect of compounding.

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Note: Due to the way interest is calculated - interest rate, divided by the number of repayments, multiplied by loan balance - more frequent repayments, such as weekly repayments would translate to a lower interest rate because the total volume of your Principal loan would be reduced more frequently.

By comparison, a loan with fortnightly payments would have higher interest than one repaid weekly, but less interest than one repaid on a monthly basis.

Meanwhile, monthly payments would attract the highest interest because it effectively means the loan is being paid off slower than if it were repaid weekly or fortnightly.

In other words, by reducing your monthly repayment and paying this amount every week, you would end up making 52 rather than 12 repayments per annum.

Or for repayments every fortnight, you end up making 26 rather than 12 repayments per annum, which is the equivalent of one extra monthly repayment every year on a Principal and Interest loan.

This enables you to pay down your debt faster and cuts the interest applied to your loan in the process.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
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