A guide to managing your home loan repayments

Understanding how your home loan repayments work can help you make the most of your mortgage – and maybe even pay it off faster! Knowing how to manage your repayments and the options available to you can make it easier to stay on top of your home loan should your situation or personal goals change. Here are some important aspects of your home loan repayments to be aware of.

How do repayments work?

When you take out a home loan, you borrow a lump sum of money to purchase a property. That lump sum is then paid back to your lender over an agreed term, often 25 or 30 years. The amount you owe is spread across the loan term and broken down into regular repayments, with the addition of an interest payment determined by your interest rate. You’ll pay a percentage of your outstanding balance in interest each month until the loan is repaid.

Repayment type

There are two different types of repayments: ‘principal and interest’ and ‘interest only.’ Principal and interest repayments are repayments that pay down a portion of the loan you owe (principal) and the interest added on top in one regular payment. Interest only repayments are repayments that only cover the interest that’s being calculated on your outstanding balance – you don’t make any repayments towards the mortgage balance itself.

Many owner occupier loans are principal and interest loans. However, you may qualify for an interest only loan later if your personal goals or circumstances change.

Repayment frequency

No matter your repayment type, you’ll make your repayments at regular intervals. Usually, this is fortnightly or monthly. You may be able to change your repayment frequency to line up with when your pay cycle – speak to your lender for more details.

It’s also worth noting that construction loans for a new build or renovation project are structured a little bit differently to home loans for an established property. Check out our guide to construction loans for more information.

Home loan features to reduce interest

Managing your home loan effectively can help you reduce how much interest you pay. There are 3 commonly used ways to pay less interest on your home loan:

• Use an offset account. An offset account is a regular transaction account that’s linked to your home loan. Savings held in an offset account are deducted from your outstanding balance before interest calculations are made. However, the funds are still accessible whenever you need them.
• Use a redraw facility. Redraw is similar to an offset account in that it reduces the balance that your interest is calculated on. However, it is not a transaction account. Redraw is a facility available on some loans that allows you to make additional principal repayments to your home loan and then access them later if you need them.
• Change your repayment frequency. If you’re paying principal and interest repayments, switching your repayments from monthly to fortnightly can save you interest on your home loan. That’s because your interest is calculated daily. Paying your loan more often means your balance reduces faster. This then means your interest is calculated on a lower outstanding amount. Our home loan calculator can help you compare the impact of different repayment frequencies.

Repayment support

Taking on a mortgage is a big commitment, and sometimes things change during your loan term. If you’re unable to meet your repayments, a lender may be able to help you make your mortgage more affordable, by extending the loan term or changing the structure of your loan.

If you are experiencing financial hardship or temporary cash flow issues due to a bereavement, illness or other crisis, you may be able to negotiate a repayment holiday with your lender. This is a period of time where your home loan repayments are not due. However, interest still accrues on your loan during this time.

Want to get your home loan aligned to your circumstances and goals? A Bendigo Bank Home Loan Health Check is free to anyone, regardless of whether you bank or borrow with us. We’ll run an assessment on your loan type, loan term, equity, interest rate, features, and your personal goals to check how well your home loan fits your circumstances.