Question 1

How is the repayment calculated?

Accepted Answer

With the standard principal and interest (P&I) formula: M = P × r(1+r)ⁿ / ((1+r)ⁿ−1), where P is the loan amount, r is the monthly interest rate, and n is the total number of months. Each repayment covers interest first, with the remainder reducing the principal.

Question 2

What is an offset account and how does it reduce repayments?

Accepted Answer

An offset account is a transaction account linked to your home loan. Its balance offsets the principal, so interest is charged only on the difference. A $50,000 offset on a $600,000 loan means interest on $550,000, saving thousands over the life of the loan.

Question 3

Fixed vs variable, which rate should I use?

Accepted Answer

Fixed rates are set for 1–5 years; rate drops do not apply and break costs do. Variable rates move with the cash rate, allow offset and redraw, and have historically been lower over the long term. Many borrowers split their loan. The current variable rate gives the most realistic projection.

Question 4

What is interest-only, and when does it make sense?

Accepted Answer

Interest-only (IO) loans have lower repayments for 1–5 years because no principal is repaid. Investors use them for cash flow flexibility. After the IO period, repayments rise significantly: the principal is repaid over a shorter remaining term. For owner-occupiers, P&I from day one usually costs less.

Question 5

How much does a 0.5% rate difference matter?

Accepted Answer

On a $600,000 30-year loan, 6.5% instead of 6.0% costs $195 a month more: about $70,200 over the term.

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