Depth reading: Which is your best option for how to repay the mortgage?
Loans for housing are the largest financial contract in life. In front of the bank counter, the first choice you're facing is usually, "Equal principal" or "Equal principal"? It's not just a question of calculation, it's a question of choice that affects the quality of life for the next 30 years.
Equivalent principal: smooth choice of the period of career progression
Rationale: The total principal of the loan is added to the total interest and distributed equally to each month. The monthly repayments are fixed.
Advantages: The greatest benefit is “foreseeability”. You know very well how much money is spent every month on the thunderstorm, facilitating the long-term financial budget. At the beginning of the working-field period, income is growing and fixed repayments will put relatively little pressure on your survival.
Cost: The higher total interest expenditure was due to the fact that the lower principal repayments in the prior period resulted in the longer period of time spent by the banks.
2. Equivalent principal: a reasonable solution to be paid in advance
Rationale: The principal repayment is fixed each month and interest decreases each month as the principal decrease. The monthly programme was therefore “highest in the first month and declining monthly”.
Advantages: Total interest expenditure is the lowest. As repayments proceed, your burden will become lighter. This way you can save you a lot of interest if you have sufficient cash on hand or if you have plans to repay your loan in advance in the future.
Cost: The pressure on prior repayments is so great that they could place a heavy strain on your daily living expenses. If the first month is over 50% of your monthly income, be careful.
3. LPR Impact on you of interest rate policy
The current rate of interest on mortgages is usually composed of “LPR (market offer rate) plus base point”. LPR is dynamic, which means that your monthly supply is not static and is usually “heavy-pricing” on 1 January of each year or on the date of loan release. Using our calculator, you can model the impact of LPR down or up on your repayments by adjusting interest rate parameters.
Final recommendation on “early repayment”
- See interest rate: If you're lending at a rate of less than 3.5%, and you can find an annualized 4% more robust investment, then there's no need to pay back ahead.
- Look at the time: After more than half of the principal repayment period, the remaining amount is principal, at which point interest savings from early repayment are negligible.
- Look at the default money: Some banks apply for default payments when the loan is less than one year old and are required to confirm the contract in advance.