If you have an interest-only home loan, it’s fairly easy to do this manually. You multiply the amount you borrowed by your annual interest rate and divide the answer by 12. This will give you your monthly interest payment. However, for most home loans the formula is quite complex. That’s because you repay some of what you owe (principal) each time, as well as paying the interest. Plus the formula makes sure your loan will be fully repaid by the agreed time. As the balance of your loan comes down, so does the interest charged each time. Because your home loan repayments are kept the same each month (provided the interest rate hasn’t changed), the principal you’re paying back gradually increases each time. The consistent payments make it easier to budget. They also mean your home loan balance drops slowly at first, then gradually shrinks faster. As you reach the end of the loan’s term (say 25 years) your balance decreases really quickly, because you’re paying much less interest.