Work out the maximum loan amount you can afford based on your monthly payment budget, or find the payment for a given loan amount.
| Item | Value |
|---|
All standard loan payments in Australia are calculated using the PMT (payment) formula, which is derived from the present value of an annuity. The formula works for any amortising loan — mortgages, car loans, personal loans, and business loans all use the same underlying maths.
| Loan Type | Amount | Rate | Term | Monthly Payment | Total Interest |
|---|---|---|---|---|---|
| Mortgage (P&I) | $600,000 | 6.5% | 30yr | $3,792 | $764,920 |
| Mortgage (P&I) | $600,000 | 6.5% | 20yr | $4,483 | $475,920 |
| Car loan | $35,000 | 8% | 5yr | $709 | $7,540 |
| Personal loan | $20,000 | 12% | 3yr | $664 | $3,904 |
| Business loan | $100,000 | 10% | 5yr | $2,125 | $27,500 |
| $500,000 at 6.5% | Interest Only (5 years) | Principal & Interest (30 years) |
|---|---|---|
| Monthly payment | $2,708 | $3,160 |
| Balance after 5 years | $500,000 (unchanged) | $461,534 |
| Total interest (full term) | Much higher after IO reverts | $637,600 |
What is the PMT formula for loan payments?
PMT = PV × [r(1+r)^n] ÷ [(1+r)^n − 1], where PV is the loan principal, r is the periodic interest rate (annual ÷ 12 for monthly), and n is the total number of payment periods. This formula calculates the equal periodic payment that pays off the loan exactly at the end of the term.
Why is the monthly payment on a 30-year mortgage lower than a 20-year mortgage?
Spreading repayments over 30 years instead of 20 reduces the monthly amount but significantly increases total interest paid. A $600,000 loan at 6.5%: 30-year payment = $3,792/month ($764,920 total interest); 20-year payment = $4,483/month ($475,920 total interest). The extra $691/month on the 20-year term saves $289,000 in interest.
What is a balloon payment on a loan?
A balloon payment is a large lump sum due at the end of a loan term, with smaller periodic payments throughout the loan. Balloon payments reduce monthly repayments by deferring part of the principal to the end. They are common in commercial vehicle finance, equipment leases, and some car loans. The balloon amount must be paid, refinanced, or the asset must be sold at term end.