How mortgage repayments work: interest, principal and the formula

Almost every New Zealand home loan is a table loan: you pay the same amount every week, fortnight or month, and that amount is set so the loan is paid off exactly at the end of the term. What changes over time is the mix inside each repayment. At the start most of it is interest; by the end almost all of it is principal. On a $600,000 loan over 30 years at 5.06% (the average one-year fixed rate across the five main banks, rates as at 10 November 2026), the repayment is $3,242.97 a month. In the first month $2,530.00 of that is interest and only $712.97 reduces the loan. Principal does not overtake interest until repayment 197, more than 16 years in. Over the full 30 years you would pay about $567,467 in interest if the rate never changed.

What a table loan is

A table loan (also called a principal and interest loan) spreads your repayments evenly over the whole term. ASB describes it simply: "payments are spread out evenly over the full term of your loan". You agree a loan amount, an interest rate and a term, and the bank works out one regular repayment that will clear the loan by the last day of the term.

Every repayment does two jobs:

• It pays the interest that has built up on the balance since the last repayment.
• Whatever is left over reduces the loan (the principal).

Because the balance is largest at the start, the interest is largest at the start too, and only a small slice of each repayment goes to the principal. As the balance falls, the interest falls, and a bigger slice goes to the principal. The repayment itself stays the same, so the shift happens quietly inside it.

The other main shape is a reducing loan, where you repay the same amount of principal every time and the repayment falls as the interest falls. Reducing loans are now rare in New Zealand (ASB lists its reducing loan as closed to new applications), and we compare the two in table vs reducing loans. Interest-only loans are a third option for a limited period; see interest-only loans.

The repayment formula in plain words

The repayment on a table loan comes from the standard annuity formula, the same one banks, Sorted and our repayment calculator use:

Repayment = P x r / (1 - (1 + r)^-n)

• P is the amount you borrow.
• r is the interest rate for one repayment period: the yearly rate divided by the number of repayments a year (12 for monthly, 26 for fortnightly, 52 for weekly).
• n is the total number of repayments: years times repayments a year.

In words: the formula finds the one fixed amount which, paid every period, covers each period's interest and leaves exactly nothing owing after the last repayment. The bottom part of the formula, 1 - (1 + r)^-n, is what spreads the loan over time. The longer the term (bigger n), the closer it gets to 1, and the closer the repayment gets to plain interest. That is why stretching a loan from 25 to 30 years lowers the repayment by less than you might expect, while adding a lot of interest.

For our example, r = 5.06% / 12 = 0.42167% a month and n = 30 x 12 = 360. Put those into the formula with P = $600,000 and you get $3,242.96 and a fraction, which we round up to $3,242.97 so the loan is always repaid within the term. The last repayment is a little smaller, $3,240.66, to soak up the rounding.

The formula is not just a calculator convention. The Credit Contracts and Consumer Finance Regulations 2004 include a worked example of a $5,000 loan at 12% over 24 monthly repayments of $235.37. The same formula gives $235.367, which is $235.37 to the cent.

Worked example: $600,000 over 30 years at 5.06%

Here is how the example loan unfolds, assuming the rate stays at 5.06% for all 30 years and you repay monthly. Each row shows the interest and principal paid during that year of the loan and what is still owing at the end of it.

A few things stand out:

• Year one is mostly interest. Of the $38,916 you repay in the first year, $30,159 is interest and $8,757 comes off the loan.
• The crossover comes late. The first repayment where principal is bigger than interest is number 197, 16 years and 5 months in.
• Half the loan takes two thirds of the term. The balance first drops below $300,000 at repayment 243, about 20 years and 3 months in.
• The last year is nearly all principal. The final repayment carries just $13.61 of interest.
• Total cost. Over 30 years you repay about $1,167,467: the $600,000 you borrowed plus about $567,467 of interest.

Month one in detail: interest is $600,000 x 5.06% / 12 = $2,530.00. The repayment is $3,242.97, so $3,242.97 less $2,530.00 = $712.97 reduces the loan, leaving $599,287.03. Next month the interest is worked out on that slightly smaller balance, so a few cents more goes to principal, and so on for 360 months.

This front-loading is also why extra repayments early in a loan are so powerful: every extra dollar skips the interest it would have attracted for decades.

What changes the repayment

Three things set a table loan repayment: the amount, the rate and the term. Here is the same $600,000 loan with each of the other two changed, all monthly. The rates are the averages of the five main banks' lowest advertised rates for each term, rates as at 10 November 2026.

Cutting the term from 30 to 25 years adds $285.58 a month but saves about $108,904 of interest. Our mortgage term length guide goes further into that trade-off, and repayments by loan size has ready-made figures for other amounts.

The "total interest" column is a what-if, not a prediction. In New Zealand most borrowers fix for one to five years at a time, so the rate on a 30-year loan will change many times. Each time it does, the bank recalculates the repayment on the balance left over the years left, using the same formula. Our guide to refixing shows how that works. How much you can borrow in the first place is a different question, which our sister site homeloancalculator.co.nz covers.

How banks actually charge the interest

The formula above treats every month as one twelfth of a year. Real loans are a little more detailed:

• Interest accrues daily and is charged monthly. ASB says interest "is calculated and accrued daily and charged monthly", and ANZ says "Interest is calculated daily, so every day you have a reduced balance counts."
• Some banks count actual days. Since 5 May 2024, BNZ works out monthly loan interest on "the actual number of days in each repayment period", so 28 to 31 days. BNZ says the total principal and interest repayment stays the same; only the split between interest and principal moves a little from month to month.
• Bank calculators use the simple version too. BNZ's own calculator says that for monthly repayments it "works out interest as if every month has the same number of days".
• Rounding is not published. BNZ notes that "Actual amounts may vary slightly due to rounding". We round the repayment up to the cent and let the last repayment absorb the difference.

The upshot is that a good calculator will get within cents or a few dollars of your bank's figure, but your loan documents are the final word. Our guide to how banks calculate interest covers daily interest in more depth.

This guide is general information, not financial advice. Rates change often; rates as at 10 November 2026, from the interest.co.nz table, which shows no date of its own. Check the current figures on our mortgage rates page and with your bank.

Questions people ask

Why does so little of my repayment go off the loan at the start?

Because interest is charged on the balance, and the balance is biggest at the start. On $600,000 at 5.06%, the first month's interest is $2,530.00, so only $712.97 of a $3,242.97 repayment reduces the loan. The split improves every month as the balance falls.

Does my repayment change during a fixed term?

On a table loan, no. The repayment is set when you fix and stays the same until the fixed term ends, unless you choose to change it. When you refix, the bank recalculates it on the balance and years left at the new rate.

Is a table loan the same as principal and interest?

Yes. Both names mean a loan where each repayment covers that period's interest plus some principal, set so the loan is repaid by the end of the term. It is the standard home loan in New Zealand.

Why is my bank's figure a few dollars different from a calculator's?

Banks charge interest daily, some count the actual days in each month, and each bank rounds in its own way, which none publishes. A calculator using the standard formula will usually be within a few dollars. Your loan documents show the exact amount.