Mortgage repayment calculator: how does it work? | Home loans

How much does a home loan cost Actually Cost? Between principal, deposit, fees and interest, there are a lot of expenses to consider. Not to mention that it all spans decades, which can make it hard to figure out how much you’re actually spending.

This is where home loan calculators come in. Whether estimating mortgage payments or interest rate changes, a good calculator can be an invaluable tool during the comparison process. After all, if you know how to use them, they can help you figure out which home loans offer great deals — and which just put you in debt.

A home loan calculator is a calculation tool that estimates how much your mortgage payments could cost over time. By entering details such as term length, interest rate, and principal balance, you can see how different factors affect your overall home loan costs and how changing them could save you money.

For example, Mozo Mortgage repayment calculator has some basic features to show home loan costs in action.

  • Amount of the loan: This is the total amount of money you borrow for your home loan.
  • Interest (% pa): This is the annual interest rate. Keep in mind that Mozo’s calculator assumes one interest rate for your entire loan, so it doesn’t show you how changes in interest rates affect your repayments. (That’s what the Rate Change Calculator is for – more on that below).
  • Duration of the loan (in years): This is the length of time you pay off your mortgage. Typically, home loan terms are 20 to 30 years, but can be up to 40 years.

Changing any of these numbers affects the overall cost of your home loan. If we insert some numbers, we can see how this affects refunds in the tables below*.

If we change the loan amount…

Amount of the loan Interest rate term of the loan Monthly repayments Total interest Total cost
$500,000 3.1% per year 25 years $2,383 $210,822 $710,822
$750,000 $3,575 $316,234 $1,066,234

By adding €250,000 to the principal amount, we increase the monthly repayments by €1,192 and the overall cost of the mortgage by €355,412.

If we change the interest rate…

Amount of the loan Interest rate term of the loan Monthly repayments Total interest Total cost
$500,000 3.1% per year 25 years $2,383 $210,822 $710,822
4.1% per year $2,623 $274,066 $774,006

By changing the interest rate to 1%, we add (or save) $240 on monthly repayments and $63,244 over the life of the loan.

If we change the term of the loan…

Amount of the loan Interest rate term of the loan Monthly repayments Total interest Total cost
$500,000 3.1% per year 25 years $2,383 $210,822 $710,822
30 years $2,379 $342,782 $842,782

By increasing the term of the loan, we save €4 on monthly repayments, but increase the overall cost of the home loan by €131,960.

*Keep in mind that these are estimates only and do not take into account factors such as additional repayments, additional interest rate changes, or any other costs associated with a home loan, such as fees or stamp duties.

What if you want a more detailed picture of your home loan costs? It’s time to use the advanced tools.

If you click the “Advanced Tools” button on Mozo’s mortgage repayment calculator, it will expand to show you these new options:

  • Principal and interest vs. Interest only: This changes the type of payments you will make on the home loan. Principal and interest (sometimes abbreviated as P&I) tends to be the most common type of home loan. Interest-only home loans can be a great option for investors hoping for tax breaks, because for the first few years you’ll only be paying interest. However, they often come with higher interest rates and do not repay any of your principal, which could put you in negative equity if the value of your property changes.
  • Repayment frequency: You can change the frequency of your repayments, including monthly, weekly, or semi-monthly.
  • Introductory rate (% pa): Some home loans have an introductory interest rate for a fixed term before switching to the standard interest rate. This allows you to take into account the amount of interest you could save during this period.
  • Introductory term: Set how long you’ll get the introductory rate here.
  • Initial costs: Some lenders charge high upfront fees for their most competitive home loans. Plug the load here to see if it’s worth it.
  • Ongoing charges: Lenders may charge ongoing fees, such as account maintenance or maintenance fees, throughout the term of your home loan. Take these into account to see how they might affect your overall costs.
  • Charge Frequency: You can change the frequency of charges billed here.

By completing the above, you might get a more complete picture of the cost of financing your home loan.

Like all tools, home loan calculators can be extremely useful, but not perfect. Here are some of the pros and cons of what they can do.

Advantages

  • Excellent general cost breakers. Home loan calculators can accurately estimate your gross repayments and total interest over the life of a home loan, which can help you get some basic numbers to work out your budget and how much you can realistically afford before to apply for a specific loan.
  • Adjustable. You can vary different factors to see how they affect your costs. This can show you how one home loan (or version of a specific home loan) compares to another.
  • Free. Calculators like Mozo’s are free and unlimited, meaning you can use them for every step of your mortgage search.

The inconvenients

  • Maybe not show you the whole picture. Home loan calculators assume a specific interest rate throughout the term of the loan, so they may not show you how your repayments change due to circumstances such as cash rate fluctuations, the end fixed terms or even refinancing.
  • Cannot take into account specific deposits or fees. Home loans will require you to make a down payment (usually between 10-20%) in order for you to access the mortgage with equity. Home loan calculators don’t factor in the deposit, or other fees like discharge fees, which can give you a misleading picture of how much you need to have saved to get in.
  • Doesn’t show you how to save. Features such as a clearing account or free additional repayments can reduce the amount of interest you pay over the life of your loan, but unfortunately a calculator cannot accurately reflect these cost-cutting measures.
  • Will not affect the approval process. Just because you find an amazing loan with an amazing interest rate with the calculator doesn’t mean you can get it automatically. The lender will do their own calculations and assessments (called a utility test) to make sure your financial situation can handle the debt assumption before approving (or even pre-approving) your home loan.

If you already have a mortgage or are looking to refinance, you might be curious how a change in your interest rate affects your repayments. It’s there that Mozo’s Rate Change Calculator Between.

Our new home loan calculator lets you enter your loan details and shows you what happens if it gets hit with a variable interest rate hike. Smaller interest increases may not be too much of a rush now, but over time they can seriously add up.

Unfortunately, variable rates have jumped more than 1% in recent months thanks to the Reserve Bank of Australia. For a standard home loan, a change of this size can mean over $300 extra per month in repayments.

Try our new rate change calculator below to see how the hikes might affect you.

Looking for a home loan? Try out your new calculator skills by comparing competitive interest rates below.

*
ATTENTION: This comparison rate only applies to the example or examples given. Different amounts and durations will result in different comparison rates. Costs such as withdrawal charges or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed corresponds to a guaranteed loan with monthly principal and interest repayments of $150,000 over 25 years.

**
Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on the amount of your loan, the term of the loan and your credit history. Actual repayments will depend on your personal circumstances and changes in interest rates.

^ See Mozo Experts Choice Home Loan Awards information

Mozo provides general product information. We do not take into account your personal goals, financial situation or needs and we do not recommend any particular product. You must make your own decision after reading the PDS or offer documentation, or after seeking independent advice.

Although we pride ourselves on covering a wide range of products, we do not cover every product on the market. If you decide to request a product through our website, you will be dealing directly with the supplier of that product and not with Mozo.

Maria D. Ervin