The monthly repayment amount is the same as equal principal or equal principal and interestHave you ever struggled with which repayment method to choose when buying a home or borrowing? When the monthly repayment amount seems to be the same, is the equal principal of "iron-faced selfless" helping you save money, or is the equal principal and interest of "boiled frog in warm water" better? Today, we will unveil this mystery and take you into this battle royale with equal principal and equal principal and interest in a vivid and vivid way!Answer: Equal principal and interest.
1. Equal principal: a small accountant who is careful about budgeting.
It's like your personal financial assistant, helping you accurately allocate the principal part every month to ensure that the principal repaid each month is fixed. As the repayment period progresses, the interest decreases month by month, so the proportion of principal in the total repayment amount gradually increases, and the interest decreases. To put it simply, just like a hard-working "little ant", if you move a fixed amount of rice (principal) step by step every month, the less you will naturally owe money (interest).
For example, let's say you borrow $1 million with an interest rate of 5% and a term of 30 years. The same amount of principal is repaid every month, but the corresponding interest decreases month by month as the remaining principal decreases.
2. Equal principal and interest: a gentle and lasting friend.
The equal principal and interest is the good friend who gives you the same bill every month, and the amount repaid is always the same every month, including a part of the principal and a part of the interest. In the early stage, the interest proportion is relatively high, and in the later stage, the proportion of principal gradually increases. Under this repayment method, although the total interest will be higher than the equal principal, the monthly burden is stable, which is more convenient for budget planning.
In the same example above, although the monthly repayment amount remains the same, the total interest paid will be more over the life of the loan because the upfront repayment is more interest.
3. The logic of choosing when the monthly repayment amount is the same.
This figure is quoted from the Internet and is for reference only.
If you're someone who likes bitter before sweet and focuses on long-term cost savings, "equal principal" is your thing. It may be a little more stressful at first, but over time you'll enjoy a gradual reduction in repayment stress and a relatively small total interest expense.
On the other hand, if you prefer a steady pace of life, want your monthly expenses to be constant, and are comfortable paying a certain amount of interest costs for stability, then "equal principal and interest" is undoubtedly ideal. Although the overall interest rate is higher, the convenience of financial planning in the repayment process cannot be ignored.
Therefore, when the monthly repayment amount is the same, the choice of equal principal and equal principal and interest is not a simple mathematical problem, but also a philosophical question related to personal financial management style and life attitude. Therefore, before making a decision, it is important to weigh your financial situation, expected future income, and the need for cash flow.
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