How Home Loan Interest Is Calculated Daily in Australia

Short answer

Interest on most Australian home loans is calculated daily. A simple daily estimate is:

Daily interest = net loan balance x annual interest rate / day-count basis

For a $600,000 balance at 6.00% a year, using a 365-day illustration, one day's interest is about $98.63.

Lenders commonly add the accumulated interest to the loan monthly, but the exact day-count basis, timing, rounding, offset treatment and transaction cut-off come from the loan contract. This calculation can explain a statement, but it is not a lender quote.

Use the Mortgage Repayment Calculator for a constant-rate principal-and-interest schedule. The calculator estimates scheduled repayments; it does not reconstruct a lender's daily statement ledger.

Daily calculation and monthly charge are different

Two timings are involved:

1. The lender works out interest for each day using that day's relevant balance.
2. The lender totals those daily amounts and charges interest to the loan at the interval set by the contract, often monthly.

That is why the interest line can change between months even when the annual rate and scheduled repayment look unchanged. Months have different numbers of days, and the balance can change after each repayment, redraw, fee or offset-account transaction.

Worked example without an offset

Assume:

• loan balance: $600,000;
• annual rate: 6.00%;
• illustrative day-count basis: 365 days; and
• no transaction changes the balance during the day.

The calculation is:

$600,000 x 0.06 / 365 = $98.63

If the same balance and rate applied for 30 days, a simple illustration is:

$98.63 x 30 = $2,958.90

The lender's figure can differ because the repayment reduces principal, interest may be charged to the account, the month may contain 28, 29 or 31 days, the rate may change, and lender rounding or cut-off rules may apply.

Worked example with a $50,000 offset

ASIC Moneysmart explains that, on most home loans with an offset account, the lender subtracts the linked offset balance before calculating daily interest.

Using the same loan and rate:

The $8.22 difference assumes the full $50,000 remains in a correctly linked 100% offset for the whole day. Actual savings vary with the balance, rate, lender rules, fees and the time money enters or leaves the account.

Use the Offset Account Break-Even Tool to compare estimated interest reduction with package or account costs. It is an indicative comparison, not a recommendation that an offset feature is suitable.

Why the scheduled repayment uses another formula

A principal-and-interest repayment is designed to reduce the loan to zero over the chosen term if the rate stays constant and payments occur as modelled.

The repayment formula calculates a regular payment using the balance, periodic rate and number of payments. The lender can still calculate interest on the actual loan daily between those payment dates.

These statements are therefore compatible:

• the repayment schedule uses a monthly, fortnightly or weekly amortisation period; and
• the lender accrues interest daily under the contract.

The weekly, fortnightly and monthly repayment guide explains why paying half the monthly amount every fortnight is different from recalculating an equal-term fortnightly repayment.

Why a statement may not match the simple formula

Check these items before assuming the lender made an error.

The balance changed during the period

A scheduled repayment, extra repayment, redraw, fee, capitalised interest or other adjustment can change the balance used on later days.

The interest rate changed

For a variable loan, different daily rates can apply before and after an effective date. A fixed-rate period may also start or end part-way through a statement cycle.

The offset balance moved

Salary deposits, bills and transfers change the offset balance. The lender's transaction cut-off determines which daily balance is recognised.

The contract uses a different day-count method

Do not assume every product divides the annual rate by 365 in every year. Check the credit contract or ask the lender for the day-count and rounding method.

The interest period is not a calendar month

A statement period can start and finish on account-cycle dates rather than the first and last day of a month.

A practical statement check

For a useful reconciliation:

1. Record the opening loan balance and every dated transaction.
2. Record the interest rate and each effective date.
3. Record the linked offset balance for each day, if available.
4. Check the contract's day-count, rounding and transaction cut-off rules.
5. Calculate each day's indicative interest, then total the statement period.
6. Ask the lender for a calculation breakdown if the difference remains unexplained.

Do not use a single average balance if the account moved materially during the month. An average can be a quick sense-check, but it can hide timing effects.

Extra repayments and redraw

An extra repayment generally reduces the loan balance used for later interest calculations once it is credited. A redraw reverses some of that balance reduction.

Access, minimum redraw amounts, fees and the treatment of redraw can differ by product. Tax treatment can also depend on how borrowed funds are used. This guide does not provide tax advice.

Use the Extra Repayments Calculator to model a constant-rate repayment scenario. Check the actual contract before assuming the calculated timing or saving will match the lender's ledger.

Common mistakes

• Dividing the annual rate by 12 and treating the result as the exact monthly interest charge.
• Applying interest to the original loan amount after principal has been repaid.
• Assuming the scheduled repayment is all interest.
• Treating every offset account as a 100% offset with identical rules.
• Ignoring rate changes or account fees during the statement period.
• Expecting a repayment calculator to reproduce daily lender rounding.

Sources

• ASIC Moneysmart: Mortgage offset accounts, including daily interest and linked offset treatment. Updated 28 July 2026 and checked 2 August 2026.
• ASIC Moneysmart: Mortgage calculator, including calculator assumptions and limitations. Checked 2 August 2026.

General information disclaimer

This guide provides general information and indicative arithmetic only. It is not financial advice, credit advice, tax advice, a lender statement, a repayment quote or a recommendation about a loan feature. Interest calculations, day-count methods, fees, rates, offsets, redraw and transaction timing vary by lender and contract. Check the credit contract and ask the lender for a calculation breakdown before relying on an estimate.

Last updated: 2 August 2026.