Wondering how much interest rate you’ll be paying on your home loan or what rate you can be eligible for? Use our calculator to find out.
What is an Interest Rate?
An interest rate is the cost of borrowing money, expressed as a percentage of the loan amount. This is basically what the lenders charge you for using their money. For example, a 6% interest rate on a $500,000 loan means you’ll pay $30,000 annually in interest.
When it comes to home loans, the interest can be either variable, which means they change with the market or fixed, which means the rates stay the same.
Therefore, securing a low and competitive interest rate will help you save money over time as even a 0.25% change in the interest rate can add up to thousands of dollars over the your loan’s lifespan.
How does our Mortgage Interest Rate calculator work?
Unlike general interest rate calculator, our calculator is tailored for home loans:
- Work out your current interest rate based on your loan amount, repayment, and term.
- Calculate for both fixed rates and variable rates to see how they affect repayment.
- Estimate how much interest you’ll pay over the life of your loan.
What Factors Affect Your Mortgage Interest?
There are 4 main factors that influence how much interest you pay:
| Factors | Effect |
|---|---|
| Interest Rate | Higher rates = more total interest paid |
| Loan Size | Larger loans mean more interest overall |
| Loan Term | Longer terms mean more interest across the life of the loan |
| Outstanding Balance | You pay less interest as you reduce the principal |
How Can I Save Interest On My Home Loan?
You can save thousands of dollars on your interest just by getting the best rate. If you already have a home loan, you might even want to consider refinancing with your current lender or a new lender that can offer you a better rate. One of the most effective ways to save on home loan interest is by paying off your loan faster. Here are some tips to help you do that:
- Consider an offset account: If you have an offset account, the loan balance you pay interest on is reduced by the amount in the offset. For example, $50,000 in an offset account for a $500,000 mortgage means that you will only pay interest on $450,000.
- Make extra repayments: Your extra repayments will go more towards paying off the principal portion of your loan, which means the interest charged on the outstanding balance will go down. Some lenders may have restrictions on how much extra you can pay and charge a fee for making extra repayments.
- Make lump sum payments: Your lender may accept a lump sum payment if you’ve received a tax return, inheritance, bonus or dividend payments. The payment you make will go directly towards paying off the principal portion of your loan.
- Pay both principal and interest: You’ll end up paying less in interest over time by hitting both the principal amount and the interest on your home loan. Check out other benefits of paying both principal and interest (P&I).
Fixed or variable?
Fixing your rate is a great way for you to lock in a rate you’re comfortable with for up to the first 5 years of your loan. Despite this, some people may be better off going with a variable rate.
The reason is that fixed rate loans have high fees if you pay off your loan early or when you make large additional repayments. These fees are known as break costs.
Do not fix your rate if you are planning to:
- Sell your property
- Make a large lump sum repayment
- Refinance your home loan
What loan term should I choose?
Choosing the right loan term really depends on your situation. Most mortgages in Australia are for a 30 year loan term, but you can pay your loan off earlier than that if you can afford it.
Alternatively, you can choose to pay off your loan over 40 years, the maximum loan term offered in Australia. Keep in mind though that although your repayments will be lower with a longer loan term, you will ultimately pay more in interest.
If you currently have a mortgage, our calculator can also work out the current interest rate you’re paying based on your monthly repayments.
If you are trying to minimise your loan repayments or pay off your loan as quickly as possible, our mortgage brokers can help you develop a strategy.
Please call us on 1300 889 743 or fill in our free assessment form today.