How home loan repayments work

Most home loans are amortising loans: you make equal monthly repayments, and each repayment is split between interest and principal. Early in the loan, the balance is large, so most of each repayment is interest and only a small part reduces the principal. As the balance falls, the interest part shrinks and the principal part grows, even though the total monthly repayment stays the same (if the rate is fixed).

That is why the loan term matters so much. A longer term lowers the monthly repayment, but you pay interest for more years, so the total interest is much larger. A shorter term raises the monthly repayment, but the loan is cleared sooner and total interest falls sharply. The interest rate matters even more: a one percentage point rise on a large loan can add hundreds of dollars a month and tens of thousands over the life of the loan.

Extra repayments, an offset account, and a lower rate all work by reducing the balance on which interest is charged. This calculator deliberately excludes them, so it gives a clean baseline. If you want to compare strategies, calculate the baseline first, then ask your lender for a comparison that includes fees, offset balances, and extra repayments.