Which repayment method you should choose? Equal payments, equal instalments or fixed annuity loan?
The interest rate on a housing loan comprises a reference rate and a margin. The repayment method will affect the interest expenses during the loan period.
There are three different methods for repaying a 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 to pay off the loan within a specific time period.
See which of the repayment methods is suitable for you. You can test the impact of the repayment methods on the repayment amount with the loan calculator.
Equal payments 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 at 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 is your choice if you want to make larger payments at 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 annuity loan
This is a handy repayment method if you want to know exactly how much your repayments will be 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 rise in the interest rate may extend the loan period unreasonably, hindering the amortisation of the loan. In such an event you should contact the bank and agree on a new repayment plan.
This option is usually used for temporary financing. The entire principal of a bullet loan is repaid in one go, but there can be several interest payments.
During the instalment-free period you only pay interest, not the principal. This extends the loan period or increases future instalments. Read more about the instalment-free period for a housing loan.