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How to use a home loan calculator

A home loan calculator can help you to:

  • Find a low rate: Work out the lowest interest rates you can afford, and how much you could save compared to a higher rate loan. 
  • Find out how much you can borrow: Use your income and saved deposit to work out how much you can afford to borrow and comfortably repay.
  • Find out how much you’ll pay in interest: Break down the total cost of your loan, and see how much total interest you’ll pay when you buy a property.

Keep in mind that a mortgage calculator does not take every aspect of your personal situation into account, and is not a substitute for professional financial advice.

Why you should use a mortgage repayments calculator on RateCity

Using a mortgage calculator at a comparison site such as RateCity may help you estimate the costs and benefits of a wider variety of loan choices, and gain a deeper understanding of how a new home loan’s features can affect its overall value. 

Mortgage calculators, such as those found on RateCity, can help you quickly and easily compare the costs and benefits of home loans from a variety of different mortgage lenders – simply enter the details of each offer to estimate its overall value. 

Using a bank’s home loan calculator, such as those from the Commonwealth Bank, ANZ or another major lender, may help you estimate the cost of repayments for its own mortgage products, which can be handy if you’re looking at a specific home loan from a specific bank or lender. 

However, bank mortgage calculators may not always let you adjust the figures in your calculation (e.g. the interest rate, loan term etc.), preventing you from being able to see how each may affect the loan. Plus, there may not be an easy way to compare the calculated cost of the bank’s mortgage offers to the value of home loans from other mortgage lenders. 

On the other hand, a mortgage calculator from a home loan comparison site may allow you to enter your own interest rate, loan term and more, giving you more control over your calculations, and a greater understanding of the loans you can apply for. This can help give you a better idea of which home loan features and benefits may affect each home loan’s final cost and value.

What type of home loan calculator should I use when I’m looking to buy?

Much like home loans, mortgage calculators aren’t one-size-fits-all, and there are many options to choose from. 

If you’re starting out, you may want to use a borrowing power calculator, which will help you determine how much money you can expect to take out ahead of pre-approval. You can use this number to gauge how much you think you can afford, and apply that as you search for a home. 

A broker may be able to help maximise your borrowing power, but this is a solid first step to working out what you can spend. 

If you’re closer to buying, a Lender’s Mortgage Insurance calculator will help provide a gauge on how much LMI you might be up for on a property, while a Stamp Duty Calculator assists in understanding any stamp duty you may have to pay on a property.

After this, consider the calculator on this page, the standard Home Loan Calculator, which provides a more firm understanding of what you can expect to pay for a new home. Home loan calculators, such as RateCity’s mortgage calculator, provide a way of working out which loans match your needs and financial situation, ordered by variables that matter most to you. 

What other costs should I consider? Are there upfront costs?

While a home loan calculator can assist with answers on mortgage costs, there are many factors that can affect the cost of your home loan, as well as other expenses associated with buying home or investment property. These include: 

  • Type of property: Are you buying a new or existing dwelling? Home loans for new off-the-plan developments may cost more, as the value of the property is not yet known.
  • Type of buyer: Are you an investor? An owner-occupier? A first home buyer? Many banks consider some types of borrowers riskier than others, and may charge higher interest rates for certain loan types. 
  • Deposit size: Is your deposit less than 20 per cent of the property value? Do you have a loan to value ratio (LVR) above 80 per cent? If so, you may have to pay lenders mortgage insurance (LMI).
  • The state or territory where you’re buying: Costs like stamp duty vary from state to state.
  • Additional costs: You may be able to add extra expenses to your home loan, such as to cover the cost of moving, renovating or refurnishing a property. However, this may mean paying more in interest. 

What if interest rates change?

While you can use a mortgage calculator to work out the cost of a home loan, these calculations are unlikely to remain accurate for your home loan’s full term. Variable interest rates may rise or fall, making your mortgage payments cost more or less. Even a fixed interest rate is only temporary, and will revert to a variable rate upon expiry. 

One way to estimate if you can afford a mortgage is to calculate the repayment amount if interest rates were to suddenly increase by two percentage points, and work out if these higher mortgage payments could still fit into your household budget.  

How much can I borrow?

Before most banks will approve a home loan application, they’ll want to be confident you can comfortably afford the loan without ending up in mortgage stress. This is when a sudden change in your circumstances, such as an interest rate increase or losing your job, could leave you struggling to afford your home loan. 

Different banks measure mortgage stress differently, One common benchmark is that if more than one third of your household income would go towards repayments on a home loan, you may be in mortgage stress. 

Before you apply for a mortgage, look at your income and expenses to work out how well you could manage the repayments. 

How does my salary affect my home loan?

The more money you take home from your job, the more you may be able to afford in mortgage repayments. The larger the repayments you can afford, the more money you may be able to borrow in your home loan.

When a lender calculates if you can afford a home loan, it will likely concentrate on income you regularly earn from your job. Other income sources, such as bonuses, overtime, or interest from investments, may not be fully included, as these are considered less regular.

If you don’t earn a regular salary from an employer, such as if you’re a freelancer, contractor, or sole trader, you may not be able to provide payslips as proof of income when you apply for a home loan. It may be worth comparing some low-doc home loan options to help improve your application’s chances of approval.  

What about extra home loan repayments?

Many home loans let you make extra repayments, to reduce your loan amount faster. This can help to reduce your interest charges, so your loan can cost less and you can get out of debt sooner. 

A home loan calculator can help you estimate how much you could save in interest charges by regularly making extra repayments on your home loan, or by paying a lump sum onto your mortgage. Sometimes even switching from monthly repayments to fortnightly repayments can make a big difference to your loan’s total cost.

Keep in mind that some lenders limit how many extra repayments you can make on a home loan, or may charge fees for making extra repayments. Be sure to check the terms and conditions, key facts sheet or product disclosure statement.

What about interest-only home loans?

Paying only the interest charges on your home loan may be appealing if you want to reduce the impact on your monthly household budget. However, while you’re making interest-only repayments, you’re not reducing the loan principal you owe. This means your loan will take longer to pay off, and may cost you more after it reverts to a principal and interest loan.  

Compare the different repayment types before making your choice. You can use a mortgage calculator to work out how much an interest-only loan may save you in the short term, or cost you in the long term, and decide if an interest-only loan may be right for you. 

What’s the next step after using a mortgage calculator?

After the mortgage repayment calculator has told you how much you could expect to pay for your home loan, the next step is to compare the range of home loans that are available on the market, and to consider their interest rates, fees, features and other benefits, such as offset and redraw. There may also be other eligibility criteria or lending criteria for you to fulfil when you’re home buying.

Keep in mind that as well as interest, there may be upfront and ongoing fees and other charges to consider. To get a better idea of a home loan’s overall cost, look at its comparison rate. A mortgage’s interest and standard fees and charges are included when calculating its comparison rate, so you can tell at a glance which loans could end up costing more or less. Just remember that home loan comparison rates are calculated using pre-set assumptions for consistency – different terms will likely apply to your loan, so the comparison rate should provide a guideline only.

Once you find a loan that may match your needs, you can contact the lender directly to make an application. If you’re having trouble working out which mortgage offer may be right for you, a mortgage broker may be able to provide personal financial advice. 

What type of home loan calculator should I use if I want to refinance?

Once you’ve been paying a mortgage for a while, and have had a chance to build up some equity in the property, it may be worth comparing your home loan options to see if you want to refinance your loan. Switching to a lender offering a lower home loan interest rate could mean paying less money from month to month, leaving more room in your household budget. 

You may want to consider using a Mortgage Stress calculator to work out whether you’re comfortable in your current home loan, and whether you can do better. If you come out in the green, you may be fine, but yellow and red suggest a high level of stress, and you may be able to consider switching home loan lenders. 

Customers looking to refinance may want to use the Home Loan Refinance Calculator, which like a mortgage calculator provides options for customers thinking of switching banks and lenders, and shows potential savings. Remember that switching home loan products to a mortgage with a longer loan term could end up costing you more in total, even if the interest rate is lower, so consider your options carefully.

How do I know if I have to pay LMI?

Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What happens when you default on your mortgage?

A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time. 

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Do other comparison sites offer the same service?

Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

How does Real Time Ratings work?

Real Time RatingsTM looks at your individual home loan requirements and uses this information to rank every applicable home loan in our database out of five.

This score is based on two main factors – cost and flexibility.

Cost is calculated by looking at the interest rates and fees over the first five years of the loan.

Flexibility is based on whether a loan offers features such as an offset account, redraw facility and extra repayments.

Real Time RatingsTM also includes the following assumptions:

  • Costs are calculated on the current variable rate however they could change in the future.
  • Loans are assumed to be principal and interest
  • Fixed-rate loans with terms greater than five years are still assessed on a five-year basis, so 10-year fixed loans are assessed as being only five years’ long.
  • Break costs are not included.

Mortgage Calculator, Repayment Type

Will you pay off the amount you borrowed + interest or just the interest for a period?

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

How can I avoid mortgage insurance?

Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.

Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.

Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile

What is upfront fee?

An ‘upfront’ or ‘application’ fee is a one-off expense you are charged by your bank when you take out a loan. The average start-up fee is around $600 however there are over 1,000 loans on the market with none at all. If the loan you want does include an application fee, try and negotiate to have it waived. You’ll be surprised what your bank agrees to when they want your business.

What is a cooling-off period?

Once a home loan’s contracts are exchanged between the borrower and the lender, a five-day cooling-off period follows, during which the contracts may be cancelled if needed.