What Is the Working Capital Ratio? Explained for Australian Businesses (2025)
Ready to optimise your working capital? Use our free tools or speak to a Cockatoo expert for personalised insights into…
When you take out a loan in Australia—be it for a mortgage, car, or even business equipment—understanding your repayments is crucial. That’s where an amortization schedule comes in. With property prices and interest rates in flux for 2025, knowing how your repayments are structured can help you budget smartly and potentially save thousands over the life of your loan.
An amortization schedule is a detailed table that breaks down each loan repayment over time, showing how much goes towards interest and how much chips away at your principal balance. It’s your financial roadmap for the life of your loan—spelling out exactly what you’ll owe each month and how your debt decreases until it’s paid off.
Most Australian home and personal loans are “amortising loans,” meaning you make regular, fixed repayments that gradually reduce your debt to zero by the end of the loan term. The schedule reveals:
This transparency is vital for budgeting, comparing loan options, and understanding the true cost of borrowing—especially as lenders in 2025 adjust rates and terms in response to economic shifts and RBA policy updates.
Let’s break down a typical example: Suppose you take out a $500,000 home loan at a 6% annual interest rate (reflecting recent average rates in 2025), set to be repaid monthly over 30 years.
In the early years, a larger portion of each payment covers interest, because your outstanding balance is higher. As time goes on, more of your payment goes towards reducing the principal. Here’s what that looks like in practice:
| Payment # | Interest Paid | Principal Paid | Remaining Balance |
|---|---|---|---|
| 1 | $2,500 | $498 | $499,502 |
| 12 | $2,473 | $525 | $493,709 |
| 360 | $30 | $2,968 | $0 |
These numbers are for illustrative purposes, but they highlight the front-loaded nature of interest payments in an amortising loan—a factor worth considering if you’re thinking about refinancing, making extra repayments, or paying off your loan early.
While online calculators abound, understanding the underlying formula empowers you to crunch the numbers yourself or double-check lender estimates. The standard formula for calculating the monthly repayment (M) is:
M = P * [r(1 + r)^n] / [(1 + r)^n – 1]
Where:
Example Calculation:
For our $500,000 loan at 6% p.a. over 30 years:
Plugging these into the formula:
M = 500,000 * [0.005(1 + 0.005)^360] / [(1 + 0.005)^360 – 1]
This comes out to a monthly repayment of approximately $2,998.
To construct the full amortization schedule, for each month you calculate:
Current Balance × Monthly Interest RateMonthly Repayment – InterestPrevious Balance – Principal RepaidRepeat this process for each payment until the balance hits zero. Modern spreadsheets or loan calculators can automate this, but the logic remains the same.
With the Australian lending landscape evolving—think stricter serviceability tests, new rules for fixed vs variable loans, and ongoing RBA cash rate adjustments—having a clear amortization schedule gives you an edge. It helps you:
Some banks and brokers now provide interactive amortization tools as part of their digital offerings—a trend expected to grow in 2025 as financial literacy becomes a bigger regulatory focus.
Mastering the amortization schedule isn’t just a numbers exercise—it’s a way to take charge of your financial future. By understanding how each repayment chips away at your debt, you can make smarter decisions, spot opportunities to save, and avoid costly surprises down the line. Whether you’re a first-home buyer or a seasoned investor, a little knowledge goes a long way in today’s fast-changing market.