Repayment methods

There are three different repayment methods for amortising housing loan: equal payments, equal instalments and fixed equal payments. The choice of the repayment method depends on many things, such as whether you want to pay the same amount every month or whether you prefer amortising the loan within a specific time period.

The interest rate on a housing loan comprises a reference rate and a margin rate. The repayment method affects the interest expenses accruing during the loan period. See which of the repayment methods is suitable for you.

Equal payments

This is a good option if you want to know exactly when the loan period ends and if your repayment ability allows a possible rise in the interest rate level.

• The repayments (instalment + interest) are of equal size in the beginning of the loan period.
• The repayment only changes if the interest rate changes.
• Initially, the proportion of the instalment is small, but it increases during the loan period as the proportion of interest decreases.

Equal instalments

This is your choice if you want to make larger payments in the beginning.

• The instalment is always the same, but the repayment amount varies in accordance with the interest: if the reference rate rises, the repayment increases; if the reference rate decreases, the repayment decreases.
• If the interest rate remains the same, the proportion of interest decreases as the loan principal decreases.

Fixed equal payments

This is a handy repayment method if you want to know exactly the amount of repayment well into the future, and the duration of the loan period is not as important.

• All repayments are of equal amount throughout the loan period.
• If the reference rate rises, the loan period is extended; if the reference rate falls, the loan period shortens. The repayment is always at least equal to the amount of interest.
• If the interest rate level is very low at the time you draw down the loan, a raise of the interest rate may extend the loan period unreasonably long, hindering the amortisation. You should contact the bank and agree on a new repayment plan.

Bullet repayment

This option is usually used for temporary financing. The entire principal of the loan is repaid in one go, but there can be several interest payments.

Instalment-free period

During the instalment-free period you only pay interest, not the principal. This extends the loan period or increases future instalments.