Amortisation Schedules: Reading Your First 12 Months

Key takeaways

• Your first repayment on a $750,000 loan at 6.5% is roughly 86% interest and 14% principal.
• After 12 months the balance has fallen from $750,000 to about $741,600.
• The crossover — where principal exceeds interest in a single repayment — arrives around year 19 of a 30-year loan at 6.5%.
• Extra repayments in the first five years are worth several times the same dollars paid in the last five.

What does the first year actually look like?

Each month the lender charges interest on the balance you owe, then applies what is left of your repayment to the principal. On a $750,000 loan at 6.5% with a $4,740 repayment:

The principal portion grows by only a few dollars a month at the start. That acceleration compounds, but it takes years to become visible.

Why is so much of it interest?

Because interest is charged on what you still owe. In month one you owe the full $750,000, so one month of interest at 6.5% is $750,000 × 0.065 ÷ 12 = $4,063. Your repayment is $4,740, so $677 is left to reduce the debt.

By month 360 the balance is nearly zero, so almost the entire $4,740 goes to principal. The repayment never changes; the split does.

When does principal overtake interest?

On a 30-year loan at 6.5%, the crossover point falls around year 19. Before that, more than half of every repayment services interest.

The crossover moves earlier at lower rates and later at higher ones. At 4% it arrives around year 14; at 8% it slips past year 22. This is the mechanism behind the standard advice that the early years are where extra repayments do the most work.

What does an extra $200 a month do?

Adding $200 a month from the first repayment on the same loan:

• The loan is repaid in about 26 years and 2 months instead of 30.
• Total interest falls from roughly $956,500 to about $824,000 — a saving near $132,000.
• Total extra paid is roughly $62,800, so each extra dollar saves about two dollars of interest.

The same $200 a month started at year 20 saves under $15,000, because there is far less remaining interest left to avoid.

Frequently asked questions

Can I get an amortisation schedule from my lender?

Yes. Most Australian lenders will produce a full schedule on request, and many show it in internet banking. It is worth checking against your own calculation, because the schedule assumes you never make an extra repayment or redraw.

Does an offset account change the schedule?

It changes the interest charged but not the scheduled repayment. Money in an offset reduces the balance interest is calculated on, so more of your fixed repayment goes to principal and the loan finishes early.

Why did my balance go up in the first month?

That usually means fees, or interest accrued between settlement and your first repayment date, were capitalised onto the loan. It is common when settlement falls mid-cycle and does not indicate an error.

Related reading

• The Home Loan Repayment Formula, Worked Step by Step

Sources

• Standard variable housing loan rates, statistical table F5 — Reserve Bank of Australia
• Home loan calculators and guidance — ASIC Moneysmart