Understanding your mortgage repayments is an essential step in homeownership or property investment. At MiMortgage, we believe in empowering our clients with knowledge so they can confidently navigate the property market. Whether you’re buying your first home, expanding your portfolio, or refinancing, this guide will break down how mortgage repayments work and the factors that influence them.
What Are Mortgage Repayments?
Mortgage repayments are the regular payments you make to your lender to pay off your home loan over an agreed term, typically 25 to 30 years. These payments include two key components:
- Principal: The amount you borrowed to purchase your property.
- Interest: The cost of borrowing the money, calculated as a percentage of your outstanding loan balance.
Depending on your loan structure, your repayments might cover both the principal and interest, or they could be interest-only for a specified period. At MiMortgage, we ensure our clients fully understand their repayment structure so they can plan their finances with confidence.
Six Factors That Influence Mortgage Repayments
Every borrower’s mortgage repayments will differ depending on the following factors:
Loan Amount (Principal)
The larger the loan amount, the higher your repayments. We work with our clients to assess their borrowing capacity and secure a loan amount that aligns with their financial goals.
Interest Rate
Interest rates can be fixed, variable, or a combination of both (split rate). Fixed rates provide stability by locking in repayments for a set term, while variable rates fluctuate with market changes, offering flexibility. Split rates allow you to enjoy the best of both worlds.
Loan Term
A longer loan term reduces monthly repayments but increases the total interest paid over time. Conversely, a shorter loan term means higher repayments but less interest overall. We help our clients find the right balance.
Repayment Frequency
Borrowers can often choose to make weekly, fortnightly, or monthly repayments. Opting for more frequent payments reduces the principal faster, potentially saving on interest.
Repayment Type
- Principal & Interest (P&I): Reduces the loan balance over time and is the most common repayment type.
- Interest-Only (IO): Lower initial payments covering only the interest for a set period, often chosen by investors.
Lender’s Mortgage Insurance (LMI)
If your deposit is below 20%, you may need to pay LMI, which protects the lender in case of default. LMI is often added to the loan amount, increasing repayments slightly.
How Are Mortgage Repayments Calculated?
In Australia, lenders calculate repayments using a process called amortisation. This divides your loan into manageable repayments spread across the loan term. For principal and interest loans, repayments remain consistent, but the breakdown changes over time:
- In the early years, a larger portion goes toward interest.
- Over time, as the principal reduces, the interest portion decreases, and more of your payment goes toward the principal.
With MiMortgage, we use advanced tools to calculate repayments accurately and provide clear explanations so you know exactly how your loan works.
Key Features to Consider for Managing Repayments
Modern home loans come with features designed to give borrowers greater flexibility and control:
- Extra Repayments
Making additional repayments reduces your principal faster, saving interest and helping you pay off your loan sooner. Variable loans typically allow unlimited extra repayments, while fixed loans may have limits.
Offset Accounts
An offset account reduces the interest you pay by offsetting your loan balance with the funds in your account. For example, if you have $20,000 in your offset account and a $500,000 loan, you’ll only pay interest on $480,000.
Redraw Facility
A redraw facility allows you to access extra repayments you’ve made. This feature offers flexibility but may come with restrictions or fees.
At MiMortgage, we guide you in understanding which loan features align with your financial goals, helping you maximise savings and manage cash flow effectively.
Why Choose MiMortgage for Your Home Loan?
At MiMortgage, we’re dedicated to putting our clients at the centre of everything we do. Our team takes the time to understand your financial situation, providing tailored advice and solutions that suit your needs. Whether you’re a first-time buyer, a seasoned investor, or refinancing, we make the loan process simple and stress-free.
Conclusion
Understanding your mortgage repayments is a vital part of managing your finances and achieving your property goals. By knowing the factors that influence your repayments and the features that can save you money, you’ll be better equipped to make informed decisions.
If you’re ready to take the next step, MiMortgage is here to help. Contact us today to explore tailored loan options and start your journey with confidence.
