How are loan repayments calculated?

Loan repayments are calculated using a standard amortisation formula. For principal and interest loans, each monthly payment covers both interest on the remaining balance and a portion of the principal. In the early years, most of the payment goes towards interest. Over time, the principal component grows and the interest component shrinks. The formula accounts for the loan amount, interest rate, and loan term to produce a fixed repayment amount.

What is the difference between principal and interest vs interest-only?

With a principal and interest loan, each repayment reduces both the interest owed and a portion of the loan balance. With interest-only, you only pay the interest for a set period (typically 1 to 5 years) and the loan balance stays the same. Interest only loans have lower repayments during the IO period, but when it expires you switch to principal and interest on the remaining term, which means higher repayments. This jump is called the IO cliff.

How does an offset account reduce interest?

An offset account is a transaction account linked to your home loan. The balance in the offset is deducted from your loan balance before interest is calculated. For example, if you owe $500,000 and have $50,000 in your offset, you only pay interest on $450,000. The more you keep in the offset, the less interest you pay and the faster you pay off the loan. It is one of the most effective strategies for reducing total interest on Australian mortgages.

How much can I save by switching to fortnightly repayments?

Switching from monthly to fortnightly repayments is a simple way to pay off your loan faster. Instead of 12 monthly payments per year, you make 26 fortnightly payments, which is equivalent to 13 monthly payments. That extra payment each year goes directly to reducing the principal. On a typical 30 year loan, this can save you four to six years of repayments and tens of thousands in interest.

What is a split loan?

A split loan divides your mortgage into two portions: one at a fixed rate and one at a variable rate. The fixed portion gives you certainty on repayments for the fixed term, while the variable portion lets you benefit if rates drop and typically comes with features like an offset account and extra repayments. It is a common strategy for borrowers who want some rate protection without locking in the entire loan.

Can I claim loan interest as a tax deduction?

If the property is an investment (not your primary residence), the interest on the loan is generally tax deductible in Australia. This means the ATO effectively subsidises part of your holding costs. The actual benefit depends on your marginal tax rate. At a 37% marginal rate, every dollar of interest saves you 37 cents in tax. The calculator models this so you can see your effective after tax repayment cost.

See the true cost of your loan, not just the monthly number

Your monthly repayment is the surface. Underneath: offset account savings, IO cliff exposure, rate sensitivity, and after-tax cost. Model the full picture for any Australian property loan.

P&I and IO

Both repayment types

Offset modelling

See the real savings

Rate stress test

+1%, +2%, +3%

After-tax view

Investment deductions

How this is different

Bank calculators show you principal and interest. Presm shows you what your $50,000 offset saves over 30 years, when your IO cliff hits and by how much, what happens if rates rise 2%, and what the loan actually costs after tax deductions on investment properties. That is the difference between a number and a plan.

What the calculator covers

P&I and interest-only

Model both repayment types. See the IO cliff — the jump when interest-only expires and P&I kicks in on a shorter remaining term.

Offset account modelling

See exactly how much your offset saves over the life of the loan. $50,000 in offset can save over $100,000 in interest on a 30-year loan.

Rate stress testing

What happens if rates rise 1%, 2%, or 3%? See the monthly and total impact before it hits your bank account.

After-tax analysis

Investment loans are tax deductible. See your effective repayment cost after the ATO gives back your marginal rate on interest payments.

How loan repayments work in Australia

Your lender calculates repayments using an amortisation schedule. For P&I loans, each payment covers interest on the outstanding balance plus a portion that reduces the principal. Early on, most of your repayment goes to interest. As the balance decreases, the interest shrinks and principal grows.

A $500,000 loan at 6.5% over 30 years costs over $637,000 in interest alone — more than double the original loan. Understanding this dynamic is the first step to reducing it. Offset accounts, extra repayments, and fortnightly payments can save years off your loan and hundreds of thousands in interest.

How it works

Enter your loan details

Loan amount, interest rate, term, repayment type. Add your offset balance if you have one. Takes about 30 seconds.

See the full breakdown

Monthly repayments, total interest, offset savings, IO cliff impact, and rate stress scenarios — all calculated instantly.

Model different strategies

Change the offset, switch between P&I and IO, adjust the rate. See how each variable moves the total cost of your loan.

What borrowers should know

Small changes to how you manage your loan can save you years and six figures in interest.

Offset beats extra repayments for flexibility. Both reduce interest, but offset funds stay accessible. Extra repayments may require a redraw facility and some lenders restrict access. For investors, offset also preserves loan deductibility.
The IO cliff is steeper than most people expect. When interest-only expires, you repay the full principal over the remaining term. A 5-year IO period on a 30-year loan means P&I over 25 years — repayments can jump 40% to 60% overnight.
Fortnightly payments are an easy win. 26 fortnightly payments equals 13 monthly payments per year instead of 12. That extra payment goes straight to principal and can shave 4 to 6 years off a 30-year loan.
Rate buffers should be personal, not generic. Banks stress test at 3% above current rates. But your actual exposure depends on your loan size, income, and expenses. Model your specific situation rather than relying on a rule of thumb.
Investment loan interest is tax deductible. At a 37% marginal rate, every dollar of interest effectively costs you 63 cents. The after-tax cost of holding an investment property is materially different from the headline repayment.

Frequently asked questions

: Loan repayments are calculated using a standard amortisation formula. For principal and interest loans, each monthly payment covers both interest on the remaining balance and a portion of the principal. In the early years, most of the payment goes towards interest. Over time, the principal component grows and the interest component shrinks. The formula accounts for the loan amount, interest rate, and loan term to produce a fixed repayment amount.
: With a principal and interest loan, each repayment reduces both the interest owed and a portion of the loan balance. With interest-only, you only pay the interest for a set period (typically 1 to 5 years) and the loan balance stays the same. Interest only loans have lower repayments during the IO period, but when it expires you switch to principal and interest on the remaining term, which means higher repayments. This jump is called the IO cliff.
: An offset account is a transaction account linked to your home loan. The balance in the offset is deducted from your loan balance before interest is calculated. For example, if you owe $500,000 and have $50,000 in your offset, you only pay interest on $450,000. The more you keep in the offset, the less interest you pay and the faster you pay off the loan. It is one of the most effective strategies for reducing total interest on Australian mortgages.
: Switching from monthly to fortnightly repayments is a simple way to pay off your loan faster. Instead of 12 monthly payments per year, you make 26 fortnightly payments, which is equivalent to 13 monthly payments. That extra payment each year goes directly to reducing the principal. On a typical 30 year loan, this can save you four to six years of repayments and tens of thousands in interest.
: A split loan divides your mortgage into two portions: one at a fixed rate and one at a variable rate. The fixed portion gives you certainty on repayments for the fixed term, while the variable portion lets you benefit if rates drop and typically comes with features like an offset account and extra repayments. It is a common strategy for borrowers who want some rate protection without locking in the entire loan.
: If the property is an investment (not your primary residence), the interest on the loan is generally tax deductible in Australia. This means the ATO effectively subsidises part of your holding costs. The actual benefit depends on your marginal tax rate. At a 37% marginal rate, every dollar of interest saves you 37 cents in tax. The calculator models this so you can see your effective after tax repayment cost.

Model your loan repayments properly

Offset, IO cliff, rate stress, after-tax cost. Everything you need to manage your loan.