Guide
What to enter, what to read, and what to ask the bank
The tool recalculates as you type, so the best way to use it is side by side with the bank’s offer sheet, adjusting one field at a time.
Step one: the four numbers you must have
Most borrowers know exactly one number, the promotional rate. These four are what actually decide how much you pay:
| Field | How to ask your loan officer |
|---|---|
| Promotional rate | What is the fixed rate for the opening period, in percent per year? |
| Promotion length | How many months does that rate hold, counted from disbursement or from signing? |
| Base rate | After the promotion, which base rate does it float against, what is that rate today, and how has it moved over the last twelve months? |
| Margin | What margin is added on top, and is it fixed in the contract? |
If your loan officer cannot answer the third and fourth questions, you do not yet know the real cost of the loan. Those two numbers decide the remaining two hundred months.
Step two: pick the right interest method
There are three common ones, and picking the wrong one skews the result badly:
- Equal principal, interest on the reducing balance. Principal is fixed each month and interest falls with the balance, so the payment is heaviest at the start. The most common home loan structure.
- Equal instalments. The same amount every month, but the early years are mostly interest, so the balance comes down very slowly. Easier on cash flow, more expensive in total interest.
- Flat interest on the original principal. Interest is always charged on the amount you originally borrowed, however much you have repaid. Rare on home loans but it still appears on some products, and it is far more expensive than the other two.
The Three interest methods on the same loan table compares all three on your own figures, so you can see the gap as a concrete number.
Step three: read the results in this order
- The verdict at the top. It names the month the payment jumps, by how much, and why. If your loan has a principal grace period, the line below flags the second jump, when principal repayment begins.
- The effective rate. This is the one number that compares two differently structured offers fairly. A 6.9% offer with a short promotion can cost more than an 8.3% offer with a long one.
- The burden on your income. Under 35% is safe, 35 to 45% is tight, above 45% is risky. The figure to worry about is the peak, not the first month.
- The stress test. If the up-two-points scenario already puts you in the risky band, this loan is stretched too thin against your current income.
- The cost of settling early. Check it in advance so you know whether you can really get out if the floating rate climbs, or whether you are locked in.
Step four: compare several banks
Enter the first bank’s offer, hit Pin this scenario to compare, then change the inputs to the second bank and pin again. The tool holds four scenarios side by side, each showing the first payment, the heaviest payment, the total cost above principal, and the effective rate.
The Copy share link button builds a link containing every input you have set. Send it to your partner or your parents and they open exactly the same scenario, with nothing to retype.
A few advanced tips
- Leave income growth at 0. The cautious scenario is always the more trustworthy one. If you want to see what a pay rise does, enter it and compare the two results.
- Fill in loan insurance if the bank pushes it on you. It commonly runs around 6% of the amount borrowed, is payable upfront, and it moves the effective rate noticeably.
- Try the extra principal field. On a twenty-year loan, paying an extra amount equal to the monthly principal cuts the term to roughly half.
- Do not skip the fee-on-overpayments switch. Plenty of contracts charge the fee on partial repayments, not just on settling in full.