How to understand your home loan statement

Your lender will issue you a home loan statement every month. This document will show you how much of the loan you have repaid and how much is remaining. It should include other information too, such as any money you've saved in your offset account plus your interest rate. Understand your mortgage statement more clearly with this guide.

Understanding your home loan statement

Here are some common terms you'll find on a home loan statement and what they mean:

• Statement period: this tells you the dates covered in this period, usually a month.
• Opening balance: this tells you how much was left to repay on your loan at the start of the statement period.
• Closing balance: this tell you how much is left to repay on your loan at the end of the statement period (if you've made repayments during the period then your closing balance should be smaller than your opening balance).
• Credits: the money you have paid into the home loan during this period.
• Debits: any money removed from the loan or offset account.
• Interest summary: this should tell you your current interest rate and how much interest was charged during the statement period.
• Offset transactions: if you've put money into your offset account (if you have one) or spent some, this will appear here.
• Total balance outstanding: this is how much is left on your home loan, when all debits and credits are taken into account at the end of the statement period.

How is your monthly repayment calculated?

This depends on what repayment type you have agreed to:

• Principal and interest: These payments will include the monthly interest accrued, any scheduled fees and a portion of your principal.
• Interest-only: For the defined term, these payments will cover the monthly interest accrued plus any scheduled fee.

Most financial institutions allow you to choose to make your repayments on a weekly, fortnightly or monthly basis. The more repayments you make, the faster you can pay off your home loan. Below is the general formula of how the interest is calculated on your home loan.

Example 1

John Packer has a standard ING Mortgage Simplifier home loan with a variable interest rate of 5.72% p.a. with no ongoing monthly or annual fees and a free redraw facility.

Example 2

The same standard home loan with an initial interest rate of 6.22% which decreases to 5.72% per annum part of the way through the month and a repayment of $1950.89 with an additional deposit of $700 on the 14/11 and $400 on the 04/12.

What do the numbers mean?

1. Repayments of $1950.89
2. Interest charged on the loan at 5.97% p.a. = $1,583.76
3. Notification of rate change
4. Interest charged on the loan at 5.72% p.a. = $1548.45
5. Extra repayments into the mortgage

How is interest calculated on John's loan?

Here is the formula used to calculate the interest of John's loan during 12 October to 24 December before the interest rate decreased.

Why does the interest charged on your home loan increase or decrease some months?

A number of reasons can make this happen:

• The number of days in the month
• Increase or decrease to the cash rate during the month
• Increase or decrease to the outstanding loan balance during the month

Tips to manage your home loan account

• Know the fundamentals about interest and how interest is applied to your home loan account
• Always make your monthly repayment on or before the due date. If you are about the miss a mortgage repayment, ensure that you notify your lender first.
• Set up a direct debit to automatically make payments from your nominated bank account to avoid any late payments. If you do set up a direct debit, ensure you have enough funds in the account or you could be charged a dishonour fee.
• Always try to pay off more than your minimum repayment and you could take years off your loan – pay more, more often.
• Read and understand the terms and conditions of your home loan account so there is no room for unexpected surprises.

And if you think you're not getting a competitive interest rate, compare and switch to a better deal or talk to a mortgage broker.