What this repayment figure assumes
The figure above answers one question: what level payment, made every period at a fixed rate, clears the balance exactly at the end of the term. Four things it holds constant are not constant in a real loan. It assumes one rate for the whole term, so a variable rate, or a fixed rate reverting at the end of its fixed period, will not follow it. It assumes principal and interest, so an interest-only loan does not reduce and steps up sharply when the interest-only period ends. It assumes no fees, which is why Australian lenders must also publish a comparison rate, described by Moneysmart as “a single figure of the cost of the loan” that includes “the interest rate and most fees”. And it assumes no offset balance and no extra repayments, either of which changes the arithmetic from the day it lands.
A worked example. Take a 600,000 dollar loan at an assumed 6.00 per cent over 30 years, principal and interest. Not a rate on offer, just a clean number. The repayment is about 3,597 dollars a month, and total interest over the term is about 695,000 dollars. Change only the term to 25 years and the repayment rises to about 3,866 dollars, while total interest falls to about 560,000 dollars. Five years of term costs about 268 dollars a month and saves about 135,000 dollars.
The conclusion to draw is that the term field, not the rate field, is where the lifetime cost is decided, and it is the field most often left at its default. Compare loans on the comparison rate rather than the headline rate, and read total interest alongside the repayment when testing a term.
Longer read: Why early mortgage repayments are mostly interest, and what an extra repayment buys. Interest on a home loan is charged on what is still owed, so the early repayments are almost entirely interest and the later ones are almost entirely principal. That single fact decides what an extra dollar is worth and when.
The upfront costs are a separate calculation: the stamp duty calculator estimates the duty due around settlement, and the borrowing power calculator shows how a lender assesses the same loan. Why the early repayments barely reduce the balance, and what an extra repayment buys, are covered in why early mortgage repayments are mostly interest.