Money
Equal payments vs equal principal: which loan repayment costs less?
The repayment type you pick can change the total interest by tens of thousands. Here's a side-by-side comparison with real numbers.
Same loan, three ways to repay
Take a 300,000 loan at 4.2% fixed for 30 years (360 months):
| Type | Monthly payment | Total interest |
|---|---|---|
| Equal payments | about 1,467 every month | about 228,140 |
| Equal principal | 1,883 first month → 836 last month | about 189,530 |
| Interest-only + balloon | 1,050 interest, then 300,000 at the end | 378,000 |
Equal principal saves about 38,600 in interest. Try your own numbers in the loan calculator.
Why the difference?
Each month's interest is remaining balance × annual rate ÷ 12, so paying principal down faster means less interest. Equal-principal loans cut the balance fastest. Equal-payment loans front-load interest: in the example above, after 15 years you still owe about 195,670 — roughly two thirds of the original amount.
So is equal principal always better?
Not necessarily. Its first payment is about 416 higher, which can strain your budget or reduce how much you can borrow. Equal payments are easier to plan around, especially if your income is expected to rise. Interest-only suits short loans you'll repay from a known lump sum.
Stress-test variable rates
If your rate can change, recalculate with the rate 1 point higher. If you could still afford that payment, you're on safer ground.
Results are estimates. Lenders' day-count rules, fees and rounding can make small differences — check the official loan disclosure before signing.