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Equal principal and equal principal and interest are two common mortgage repayment methods, and the difference between them is that the distribution of principal and interest on the monthly repayment is different.
Equal principal amount means that the principal amount of the monthly repayment is the same, and the interest decreases as the principal amount gradually decreases, so the total amount of the monthly repayment gradually decreases. Equal principal and interest means that the total amount of the monthly repayment is the same, and the principal increases as the interest gradually decreases, so the principal of the monthly repayment gradually increases and the interest gradually decreases.
If you want to repay the same amount each month, then you should choose a repayment method with equal principal and interest, which can make the repayment plan more stable and will not be burdened by the increase in the repayment amount in the later period.
There are also the following advantages to choosing the repayment method with equal principal and interest:
1. Less interest expense. Since the total amount of monthly payments is the same, and the interest decreases as the principal amount gradually decreases, the equal principal and interest repayment method allows you to save more on interest expenses, which can reduce your repayment costs.
2. Less pressure to repay. Since the total amount of the monthly repayment is the same, and the principal amount of the upfront repayment is less, the repayment method of equal principal and interest allows you to enjoy lower repayment pressure in the early period, so that you have more money to spend elsewhere.
There are also the following disadvantages to choosing the repayment method with equal principal and interest:
1. The amount of repayment in the early stage is large. Since the total amount of monthly repayments is the same, and the interest of the upfront repayments is higher, the repayment method of equal principal and interest will allow you to bear a higher repayment amount in the early period, thus occupying your liquidity.
2. The repayment amount in the later period is small. Since the total amount of monthly repayment is the same, and the interest of the later repayment is less, the repayment method of equal principal and interest will allow you to enjoy a lower repayment amount in the later period, thus reducing the efficiency of capital utilization.