Take a $600,000 home loan at 6.2 percent over a 30-year term. The monthly rate is 6.2 percent divided by 12, which is about 0.5167 percent, and there are 360 monthly payments. Feeding those into the standard amortising payment formula gives a monthly repayment of about $3,675. Over the full 360 payments that totals roughly $1,322,933, so the interest paid is about $722,933, more than the amount borrowed. The fortnightly figure shown is simply half the monthly payment, $1,837, which is the amount most lenders let you split a monthly repayment into.
Item
Amount
How it is calculated
The monthly repayment uses the standard amortising loan formula. The payment equals the principal times the monthly rate times one plus the monthly rate raised to the number of payments, all divided by that same power term minus one. The monthly rate is the annual rate divided by 12, and the number of payments is the term in years times 12. Total interest is the monthly payment times the number of payments, less the original principal. The fortnightly figure here is just the monthly payment halved for budgeting convenience. Paying that half-amount every fortnight in practice means 26 fortnightly payments, which equal 13 monthly payments a year rather than 12, so you make the equivalent of one extra monthly payment and the loan pays down faster, though this tool reports the simple split rather than a re-amortised accelerated schedule.
Frequently asked questions
Fortnightly saving?
Paying half the monthly amount fortnightly = 26 payments = 13 months/year. Shaves 4-5 years off a 30-year loan.
Can I deduct mortgage interest on my home loan in Australia?
No. Interest on a loan used to purchase your primary residence is not tax-deductible in Australia. The ATO only allows interest deductions on loans used to produce assessable income, such as an investment property. If part of your home is used to earn rental or business income, only the proportional interest may be deductible.
What is Lenders Mortgage Insurance (LMI) and when does it apply?
LMI is a one-off insurance premium that protects the lender if you default on the loan. It applies when your deposit is less than 20 percent of the property value, meaning your loan-to-value ratio exceeds 80 percent. The cost varies by lender and loan size, but it can add thousands to your upfront costs. Some lenders allow you to capitalise LMI into the loan balance rather than paying it upfront.
How does the comparison rate differ from the advertised interest rate?
The comparison rate is a standardised rate that combines the advertised interest rate with most fees and charges into a single annual percentage. Australian law requires lenders to display a comparison rate alongside their advertised rate to help borrowers make fair comparisons. It is calculated on a $150,000 loan over 25 years, so it may not precisely reflect the cost for your loan size or term. Always compare both figures when evaluating home loan products.