A $600,000 loan at 6.00% over 30 years costs $3,597 a month. The same loan over 25 years costs $3,860. Shorten it to 20 years and you’re at $4,301. Same debt. Same rate. $704 a month difference depending purely on the term you choose.
Knowing how to calculate repayments on a mortgage before you apply is one of the most useful things you can do. Not because the maths is complicated, but because it turns an abstract loan amount into a real fortnightly number you can test against your actual life.
This article walks through the calculation, the variables that move it, and what it means for your borrowing decisions as a healthcare worker.
How to calculate repayments on a mortgage
Mortgage repayments are calculated using a standard amortisation formula based on three variables: your loan amount, interest rate, and loan term.
With a principal and interest loan, each repayment covers both the interest charged for that period and a portion of the loan balance. In the early stages of the loan, most of the repayment goes toward interest. Over time, a larger portion goes toward reducing the balance itself.
A repayment calculator is the quickest way to estimate your figures. However, understanding the formula behind it can help you test different scenarios before speaking with a lender.
The mortgage repayment formula explained
The standard formula for a fixed monthly repayment on a principal and interest loan is:
M = P × [r(1+r)^n] / [(1+r)^n – 1]
Where:
- M = monthly repayment
- P = principal (loan amount)
- r = monthly interest rate (annual rate ÷ 12)
- n = total number of repayments (years × 12)
That looks more intimidating than it is. Here’s a worked example.
Loan: $550,000 Interest rate: 6.20% per annum Term: 30 years
Monthly rate (r) = 6.20% ÷ 12 = 0.5167% Number of repayments (n) = 30 × 12 = 360
Plugging those in gives a monthly repayment of approximately $3,373.
Fortnightly repayments aren’t simply half of that. Most lenders calculate fortnightly repayments as the monthly figure divided by 2, then charge every two weeks. As a result, because there are 26 fortnights in a year rather than 24 half-months, you effectively make the equivalent of 13 monthly payments annually. That extra payment reduces your loan faster and cuts years off the term without you feeling it in your budget.
How your interest rate changes the number dramatically
The interest rate is the most powerful variable in the calculation. A shift of 0.50% across a $600,000 loan produces a monthly difference of roughly $180. Across 30 years, that’s $64,800 in additional interest.
Here’s what different rate scenarios produce on a $600,000 principal and interest loan over 30 years:
| Interest rate | Monthly repayment | Annual repayment | Total interest paid |
|---|---|---|---|
| 5.50% | $3,406 | $40,872 | $326,593 |
| 6.00% | $3,597 | $43,164 | $370,920 |
| 6.50% | $3,792 | $45,504 | $416,720 |
| 7.00% | $3,992 | $47,904 | $463,312 |
This is why rate comparisons matter far more than most people realise. For example, a broker who secures a 6.00% rate instead of 6.50% on a $600,000 loan saves you roughly $45,800 in interest over 30 years, without any change to the loan amount or term.
It also explains why the Reserve Bank of Australia’s cash rate decisions are so closely watched. When this happens, lenders usually adjust their variable rates in near-lockstep, and your repayment figure moves with them.
Understanding fixed versus variable versus split rate options can help you decide how much rate certainty you want built into your repayment structure.
How loan term affects repayments and total cost
Most Australian home loans default to 30-year terms. That’s not always the best choice, but it does produce the lowest monthly repayment for a given loan amount, which is why lenders use it as the standard.
Here’s how term length changes the numbers on a $550,000 loan at 6.20%:
| Loan term | Monthly repayment | Total interest paid |
|---|---|---|
| 30 years | $3,373 | $464,280 |
| 25 years | $3,617 | $535,100 |
| 20 years | $4,041 | $469,840 |
| 15 years | $4,717 | $348,060 |
A shorter term means higher repayments but significantly less interest paid over the life of the loan. A 15-year term on $550,000 at 6.20% costs $116,000 less in interest than a 30-year term, while the repayment is $1,344 more per month.
Whether a shorter term makes sense depends on your income stability, career trajectory, and whether the higher repayment sits comfortably inside your budget. For healthcare workers on structured public sector pay scales or with predictable salary increases through specialty training, a 25-year term often represents a practical middle ground.
What lenders actually use to assess your repayments
Firstly, knowing how to calculate mortgage repayments is crucial. Secondly, understanding how lenders assess whether you can actually afford those repayments is equally important. However, the two figures are not always the same.
Under APRA’s serviceability guidelines, lenders must assess your ability to repay not at the actual loan rate but at the loan rate plus a 3% buffer. So if you’re borrowing at 6.20%, the lender stress-tests your repayments at 9.20%. That’s the rate they use to decide how much you can borrow.
On a $600,000 loan, the repayment at 9.20% over 30 years is approximately $4,916 per month. As a result, that’s the figure competing against your income in the lender’s serviceability model, rather than the $3,373 you’ll actually be paying.
This buffer exists to protect borrowers from future rate rises, but it also has a direct effect on borrowing capacity. For healthcare workers with complex income structures, for instance, overtime, allowances, locum payments, and salary packaging, the way a lender assesses your income can be just as important as the rate buffer applied during servicing calculations.
Use our borrowing power calculator to get an initial estimate of what you may qualify for, but keep in mind that a broker can often find lenders whose income assessment policies work in your favour.
Principal and interest vs interest-only: what changes in the calculation
An interest-only loan changes the repayment structure entirely. For the interest-only period (typically 1 to 5 years), you pay only the interest accrued each month. The principal doesn’t reduce.
On a $550,000 loan at 6.20%:
| Loan type | Monthly repayment (first 5 years) | What’s happening to the principal |
|---|---|---|
| Principal and interest (30yr) | $3,373 | Reducing from day one |
| Interest only (5yr IO, then P&I) | $2,842 | Unchanged for 5 years |
The upfront repayment is lower, which is why some investors use this structure to maximise cash flow. However, once the interest-only period ends, the loan resets to principal and interest repayments over the remaining term.
For example, if you spent the first 5 years on interest-only repayments within a 30-year loan term, the remaining balance would then be repaid over the final 25 years. As a result, repayment amounts increase significantly.
When buying a first home or primary residence, principal and interest loans are usually the more suitable structure for healthcare workers. Therefore, the equity built from each repayment compounds over time.
Meanwhile, borrowers considering property investment as a wealth strategy may benefit from a proper discussion about the tax and cash flow implications of interest-only periods.
Your next step: from calculation to confidence
In conclusion, running repayment numbers is a useful starting point. However, what it doesn’t tell you is how your specific income, employment type, and deposit position interact with different lenders’ policies. Two healthcare workers with identical salaries can have meaningfully different borrowing capacity, because it depends on how their income is structured and which lender assesses it.
If you’ve run the numbers and want to know what your file actually qualifies for, that’s a short conversation with the Healthcare Home Loans team; therefore, we can give you the support you need. And most importantly, bring your current income details, a rough sense of your deposit, and your target purchase price. We’ll work backwards from there.
Book a free Discovery Call and get a clear picture of what’s actually possible for you.
Information current as of May 2026. Lending criteria vary by lender and are subject to change. This is general information, not personal financial advice.
Last updated: May 2026
