What’s the most cost-effective way to repay equal amounts of principal and interest?
In terms of mortgage or loan repayment methods,Equal principal and interestis the most common one. It features a fixed monthly payment, but the ratio of interest to principal changes over time. Many borrowers are concerned about how to repay more cost-effectively under this repayment method. This article will combine the hot topics and hot content on the Internet in the past 10 days to provide you with a detailed analysis of the repayment strategy of equal principal and interest.
1. Basic principles of equal principal and interest
Equal principal and interest means that the monthly repayment amount is the same, but the proportion of principal and interest in the monthly repayment will gradually change. The early interest ratio is high, and the later principal ratio is high. The following is an example of a repayment structure with equal amounts of principal and interest (taking a loan of 1 million yuan, an annual interest rate of 4.9%, and a 30-year loan as an example):
| Number of repayment periods | Monthly repayment amount | Principal | interest |
|---|---|---|---|
| 1st month | 5,307.27 yuan | 1,223.60 yuan | 4,083.67 yuan |
| 12th month | 5,307.27 yuan | 1,283.45 yuan | 4,023.82 yuan |
| Month 180 | 5,307.27 yuan | 2,680.57 yuan | 2,626.70 yuan |
| Month 360 | 5,307.27 yuan | 5,302.17 yuan | 5.10 yuan |
2. What is the most cost-effective way to repay equal principal and interest?
1.The best time to pay off your loan early: Due to the high proportion of upfront interest for equal principal and interest, if you want to reduce interest expenses, it is recommended to repay in advance in the early stage of repayment (the first 1/3 cycle). For example, a 30-year loan can be paid off early within the first 10 years.
2.Shorten loan term: If financial conditions permit, you can choose to shorten the loan term. For example, if you change a 30-year loan to 20 years, although the monthly payment will increase, the total interest will be significantly reduced.
3.Take advantage of falling interest rates: If market interest rates drop, you can consider remortgaging or renegotiating loan interest rates to reduce repayment pressure.
4.partial early repayment: If you cannot repay it all at once, you can choose to partially repay it in advance, reduce the principal and then recalculate the monthly payment to reduce interest expenses.
3. Hot topics on the Internet: equal principal and interest vs equal principal
Recently, there has been a lot of discussion about equal principal and interest and equal principal. Here is a comparison of the two repayment options:
| Comparative item | Equal principal and interest | Equal amount of principal |
|---|---|---|
| Monthly repayment amount | Fixed | Decreasing month by month |
| total interest | higher | lower |
| Early pressure | smaller | Larger |
| Suitable for the crowd | Stable income earner | Those with higher incomes |
4. Summary
Although the total interest of equal principal and interest is higher, the monthly payment is stable, making it suitable for borrowers with stable income. If you want to repay your loan more cost-effectively, you can takePay off your loan early, shorten the term, and take advantage of interest rate reductionsand other strategies. At the same time, only by choosing the appropriate repayment method according to your own economic situation can you optimize the loan cost to the greatest extent.
Recently, many banks have also introduced flexible repayment policies. Borrowers can pay more attention to market dynamics and choose the plan that best suits them.
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