Surfers Paradise Blog

Do you really know how the interest rate is calculated on your home loan?

While every bank/lender can act independently on setting their interest rates, home loans are generally based around the announcements of the Reserve Bank of Australia (R.B.A.) each month.

However, not all banks/lenders work within the R.B.A. announcement cycles, nor do they always adjust the rate.

The interest payable on your home loan will vary depending on several factors, such as the loan amount or the ongoing reduced loan amount, any additional payments made to the loan account, the frequency of payments, the term and structure of the loan, and the annual interest rate applied.

Generally, the calculation is based on multiplying your loan balance by your interest rate and dividing this by 365 days.  This gives you the daily interest that is (usually) multiplied by the number of days in the month.  The below calculations are general examples only and can vary depending on the loan factors.

Example 1

$400,000 (current balance) x 0.0354 (3.54% rate) / 365 = $38.79 interest per day

$38.79 x 30 days in June = $1,163.84 interest for June month

Example 2 (Loan adjustment top-up/offset account and a better interest rate)

$390,000 (current balance) x 0.0305 (3.05% rate) / 365 = $32.59

$32.59 x 30 days in June = $977.70

IT IS WORTH $... REVIEWING YOUR HOME LOAN
Potential annual savings by adjusting your loan factors 
Difference of $186.14 per month x 12 months = $2,233.68 annual saving