Most Australian home loans calculate interest every day on the balance you owe, then charge the total to the loan once a month. The daily amount is the balance times the annual rate divided by 365. Because it is worked out daily, every dollar you pay early or hold in an offset account reduces interest from that day.

Interest on a $600,000 loan at 6% at a glance
Period Interest, about
One day $98.63
A 30-day month $2,958.90
A 31-day month $3,057.53
Monthly principal and interest repayment over 30 years $3,597.30

How is the daily interest worked out?

Take the balance at the end of the day, multiply by the annual interest rate and divide by 365. On $600,000 at 6%, that is $600,000 times 0.06 divided by 365, or about $98.63 a day. The daily amounts add up across the month and are charged to the loan on the charge date.

Why does my interest change from month to month?

Three reasons. Months have different numbers of days, so a 31-day month costs more than a 30-day one. Your balance falls a little each month as repayments reduce it. And on a variable loan, the rate itself can change.

How much of each repayment is interest?

Early in a loan, most of it. On the example loan, the first monthly repayment of $3,597.30 includes roughly $3,000 of interest, so only about $600 reduces the balance. As the balance falls, the interest share shrinks and more of each repayment goes to principal. That is why extra payments early in a loan save the most.

How does an offset account reduce interest?

Money in a full offset account is subtracted from the loan balance before the daily interest is worked out. Keeping $20,000 in offset against the example loan saves about $3.29 a day, or about $1,200 a year, and the money stays available. The guide to offset accounts and the offset calculator show the effect over the life of the loan.

Does paying fortnightly reduce interest?

Paying half the monthly amount every fortnight means 26 half-payments a year, the same as 13 monthly payments instead of 12. The extra repayment is what saves interest, and paying earlier in the month helps a little because the balance falls sooner. The article on paying off your home loan faster compares the options.

How is interest charged on an interest-only loan?

The same daily method, but your repayment only covers the interest, so the balance does not fall. On $600,000 at 6% the interest-only repayment is about $3,000 a month. The interest-only repayment calculator shows the jump when the interest-only period ends.

What happens when the rate changes?

On a variable loan the new rate applies from the date the lender sets, and the daily calculation simply uses it from then. Lenders usually recalculate the minimum repayment, often from the next statement. When rates fall, many people keep paying the old higher amount, so the difference goes straight off the balance. On $600,000 over 30 years, each 0.25 percentage point is worth roughly $95 a month in repayments.

Is interest calculated differently on a fixed rate?

The method is the same: daily on the balance at the fixed rate, charged monthly. The differences are in what you can do. Fixed loans often cap extra repayments each year, many have no full offset, and paying the loan out early can trigger a break cost. The guide to fixed and variable home loans explains the trade-offs, and when your fixed rate ends covers the roll-off.

What is the difference between the interest rate and the comparison rate?

The interest rate is what the daily calculation uses. The comparison rate adds most fees into one figure based on a standard loan, to help compare loans. The article on comparison rates explains its limits.

Questions people ask

Is home loan interest calculated daily or monthly?

Usually calculated daily on the balance and charged monthly. Check your loan contract for the exact method.

Does paying early in the month save interest?

Slightly, because the balance falls sooner and every day of a lower balance means less interest.

How can I see how much interest I have paid?

Your loan statement shows the interest charged each month, and lenders issue a yearly interest summary, which investors use for tax.

Is home loan interest compounded?

Interest is worked out daily and charged once a month, when it is added to your balance. Your repayment then pays it off, so it does not keep building as long as repayments cover it. If repayments are missed, or interest is added to the loan as in some bridging loans, you pay interest on that interest.

Charles Touma shows you the interest on your current loan against the best available alternatives, so you can see what a lower rate or an offset would actually save. A free 30-minute call covers it. General information only, not credit advice. Example figures use the 6% example rate.

Sources: Moneysmart, home loans, home loan interest and offset accounts, checked 18 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.