How mortgage repayments work in Australia
An Australian principal-and-interest mortgage spreads a fixed monthly amount across 25 or 30 years. Early on, most of each payment is interest. Late in the loan, almost all of it is principal. That asymmetry is why extra repayments in the first ten years save the most.
The repayment formula
Monthly repayment = P × r × (1+r)^n / ((1+r)^n − 1), where P is the loan amount, r is the monthly interest rate (annual ÷ 12), and n is the total months. A $600,000 loan at 6.2% over 30 years = $3,674/month. Over the full term, you'd pay roughly $722,000 in interest on top of the $600,000 principal.
Why extra repayments compound
An extra $200/month on that same loan saves about $122,000 in interest and clips nearly 5 years off the term. The reason: every extra dollar of principal you pay today avoids 30 years of interest on that dollar. The earlier the extra payment, the larger the saving.
Fixed vs variable in Australia
Most fixed-rate periods are 1–5 years; after that the loan reverts to variable. Fixing gives you certainty but typically limits extra repayments and charges break costs if rates fall. Variable rates let you use offset accounts and pay extra freely — most owner-occupiers split their loan to get both.
Offset accounts vs extra repayments
Mathematically identical to extra repayments in terms of interest saved, but offset money stays liquid. Park your emergency fund, savings, and salary in an offset and you reduce interest every day without locking funds away.