Deciding what’s affordable is up to you, however it helps to get experienced mortgage advice to make sure your decision is realistic. Also, a mortgage adviser can teach you about lenders’ affordability criteria, such as the maximum loan-to-value and debt-to-income ratios set by the Reserve Bank. Keep in mind that you don’t have to push your borrowing and payments up to the max. It’s important to keep finances comfortable, so your home loan doesn’t become a joy-killing stress ball.
Once you’ve had an initial play with the calculator, be sure to check out some of the tips provided below. And remember, it’s important to get independent financial advice before signing up for any mortgage deal
How to use a mortgage payment calculator?
Simply enter the following values and the resulting mortgage payment will instantly appear.
- Loan amount – the purchase price minus your deposit, or the amount owing for a particular loan.
- Interest rate – the fixed or variable interest rate for your mortgage. You can also enter a higher or lower rate than the current one to see the effect of a possible change.
- Term – how long you have to repay the loan in full.
- Frequency – how often you’ll make a home loan payment - weekly, fortnightly or monthly.
How to calculate the new payments for an existing home loan
If you already have a mortgage and want to see the effect of an interest rate change, simply enter the amount you still owe (remaining principal) as the mortgage amount and the number of years remaining as the term, then enter the interest rate you want to test.
Tips for exploring mortgage payment calculations
A financial adviser or mortgage broker can help you consider a range of options to ensure your mortgage set up and payments are optimised for your situation and goals. We’ve included a few examples here to help you get started.
Fortnightly vs monthly mortgage payments
You might notice that the monthly payment for a particular mortgage is more than twice a fortnightly payment or four times a weekly one. That’s because there’s slightly more than two fortnights (28 days) in a month. Lenders calculate the payments to ensure you end up paying the same amount of interest over the life of the loan in both cases.
However, choosing fortnightly payments and increasing them slightly to half the monthly one can help you repay your mortgage faster and save thousands in interest over the life of your loan. That’s because there are 26 fortnights in a year but only 24 half-months. So, you’ll make two extra payments each year. Also, interest is usually calculated on the amount owing each day then added up for each regular payment. Making these slightly higher fortnightly payments means you reduce the amount owing more frequently, so you’ll pay slightly less interest over the second half of each month.
Choosing a longer-term home loan
If you choose a longer term, you’ll notice the regular repayment decreases, which can make a mortgage feel more affordable. However, you’re really just taking longer to repay the amount you borrowed. That means the interest part of each payment will be higher and you’ll be paying interest for years longer. However, it might help you get the home you need with the potential to refinance with a shorter term when you can afford the higher payments.
Splitting your mortgage across different interest rates
To finish, here’s a top tip from my colleague Kaushik Gorasia, MTF Mortgage Adviser:
“An expert mortgage adviser can help you to choose a mortgage set-up that best suits your needs and goals. This often includes spreading your total borrowing across different types of home loans and fixed interest rate terms. To work out the total regular mortgage payment in these situations, you can use the mortgage repayment calculator to find the payment for each home loan then simply add them together.”
