When making a repayment, have you ever wondered how much of the your loan repayment goes to your principal loan and how much is being consumed by interest charges?
During the initial years that you have your home loan, it seems that you may be going nowhere that easy and quick. But there’s no doubt about it, you are making solid progress. Over time, because you are reducing your loan balance each month, less interest will be owed each month, and more of your monthly repayment goes to marking off your principal.
DEFINITIONS:
| Loan amount: The total amount of the loan applied for within a loan agreement. | Interest to date: The amount from the total of all interest payments made from the beginning of the loan agreement until the last repayment made in the present month. |
| Interest rate: The amount of interest due per period as a percentage of the amount loaned, borrowed, or deposited. | Principal to date: The amount from the total of all principal payments made from the start of the loan agreement until the last payment in the present month. |
| Additional payments per month: The amount of additional payments (on top of the required payment) the customer plans to pay to fulfill the loan in a loan agreement. | Principal remaining: The resulting balance based on the difference from the total amount borrowed and all repayments made as specified from the start of the loan agreement until the last repayment in the present month. |
| Number of years: The total number of years of the loan as indicated in the loan agreement. |
DISCLAIMER: The data provided by this calculator is designed for payments to give an approximate estimate based on the inputs keyed in and assumptions as indicated.
Principal and Interest Calculator: ASSUMPTIONS
The Principal and Interest Calculator presents a schedule of your monthly repayments. It shows what portion of the amount is for the interest and what goes to paying off the borrowed principal amount.
Length of Month: Most loans accrue daily resulting in a varying number of days’ interest based on the number of days in the specific month (as all months are expected to be of equal duration).
Number of Weeks & Fortnights in a Year: One year is assumed to have exactly 52 weeks or 26 fortnights. This subtly assumes that a year has a total of 364 days versus the actual 365 or 366 days.
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Rounding of Amount of Each Repayment: Generally, repayments are rounded to the nearer cent. Note though that the final repayment after the increase in repayment amount will be a partial repayment as required to bring down the loan balance to zero.
Interest rate calculator for loan repayment: Monthly repayment is computed following the rounded loan amount with the interest rate entered and does not include any interest rate buffer.
Get the Loan that’s Right for You
We know that the best loan is the one that meets all your needs. Our calculator lets you compare an-interest-only loan with a principal loan using different interest rates. With our calculator, you can:
- Check which loan is the most cost-effective for you. Compare every loan’s total fee and interest charges throughout the loan with this fast and simple online tool.
- Get the best fit and compare a principal loan with an ‘interest-only’ loan.
- Have real-life estimates. Try out real-life situations based on your income and lifestyle.
- Select your interest rates and extra repayments.
- Learn about your available choices. Build up your knowledge of the various loan options and borrow with confidence.
Reading the Marks
Our Principal and Interest Calculator gives you the details on:
- how much of the repayments made will go to interest;
- how much goes to the principal per month.
It shows the running loan balance on the amount you’ve paid for each month and the amount of principal left at the end of every month.
Check and try adding extra repayment amounts to know how they could lessen the interest charges and shorten the life of your home loan.
Different Repayments
I. Principal and Interest Repayments
- This refers to your payment for your principal balance (and the corresponding interest it accrues) from the first repayment.
- You may pay less interest against the life of the loan as your principal balance will be lessened by each repayment.
- Mostly have lower interest rates, but as interest rates can vary, it is significant to study the interest rates on loan products before getting a loan application or receiving a loan being offered.
- Advantages of principal and interest loan
- pay less interest over the lifespan of the loan;
- pay a lower interest rate vs. the principal interest-only rates for a corresponding home loan;
- pay off your loan quicker, so you’ll own your property outright sooner.
- Disadvantages of a principal and interest loan
- repayments are higher than interest only;
- For investment loans, may not be as tax-efficient.
- Advantages of principal and interest loan
II. Interest-only Repayments
- As interest continues to be computed during the period you are not decreasing the principal balance, this may mean paying more interest over the lifespan of the loan.
- In the interest-only period, your minimum repayments will be reduced as you’re not repaying the principal balance.
- Your repayments are supposed to be higher when the interest-only period ends as you’ll have to start paying more to pay back the principal balance and interest, within the term initially set for your loan.
- Interest-only repayments are a better fit for some customers’ investment strategies, taking into consideration their cash flow, specific tax and investment portfolio.
- Advantages of interest-only loans
- Lower mortgage repayments for a limited period to suit your lifestyle (e.g., taking time off work to be a primary carer);
- For investment loans, there are probable tax benefits.
- Disadvantages of interest-only loans
- The principal amount will not decrease during the interest-only period.
- Higher repayments once the interest-only period finishes.
- Higher interest rate during the interest-only period.
- Higher interest payable over the life of loan.
- Advantages of interest-only loans
What are the Rates for Investors and Owner-Occupiers?
P&I (Principal and Interest) loans intended for owner-occupiers:
You are considered an owner-occupier if you are buying a home you would live in yourself. Your lender will most likely offer you a slightly better rate than it would investors.
P&I loans intended for investors:
You will likely pay a higher interest rate if you are getting a loan to buy an investment property than if you were an owner-occupier.
Principal versus Interest Mortgages
The interest rate should be your priority for evaluating loans with P & I repayments. It implies that your repayments will be lower if interest rates are low.
Things to take note of:
Interest rate – If the interest rate is lower, then it is great! But take note of the ‘Terms and Conditions.’ Home loans are offering very low introductory rates but will eventually revert to a higher rate after the initial set period.
Features – Does the loan provide what you need? Compare all the loan features (like having an offset account, or maybe accessibility to making additional repayments).
Fees – The interest rate is not the only factor that influences your costs. Check all the fees that are included in the loan, such as application, ongoing fees, and settlement.
Lender – Comparing lenders is a must. Discuss it with a lender online for a faster, more convenient transaction, or you may try to find one lending associate in a bank. Most lenders have different assumptions for risk based on their loan experiences and circumstances, it is worth checking and asking a few lenders before you push through with your application.
Loan purpose – Weigh the exact loans required for your particular situation. If you’re an investor, check out the principal and interest investment type loans. If your goal is to purchase your own home, then you need to study both the principal and interest owner-occupier loans.
Rate type – Study both the fixed and variable loans, then choose the one that’s more valuable for you. Fixed rates offer certain repayments while variable rates suggest better features and more flexibility. Learning more about the differences of the fixed vs. variable decision is recommended.
TIPS on Paying off Promptly your Principal Home Loan
The huge benefit of the P & I home loans is that from day one, you are making repayments for the principal amount. This suggests that you are not only trying to settle the loan, but you’re also forming equity for your dwelling (which is the property’s worth after deducting the outstanding debts).
Depending on the features of your loan, there are several ways on how you can repay your loan faster:
- Allow for extra repayments. You may do additional repayments if your loan allows you. If you pay say – $100 or $150 weekly vs. your debt, it can make a difference, saving you thousands in interest throughout your loan period.
- Apply your offset account. It’s so much better than the additional payments if your mortgage has an offset account where you can put in some extra money. This imitates the effect of the extras by reducing your loan principal, but then again if you need the cash, it’s yours (but if you get it off in the offset account, this means the loan principal will be higher).
- Have a fortnightly mode of repayments. Changing from monthly then fortnightly payments provides a boost. The reason is that we have 12 months in a year. However, note that we have 26 fortnights so an extra fortnight’s mode of payment per year in the long run is better, right?
- If your rate increases, shift. Having your home loan for a few years, you might be alarmed to find out how high your current rate is. If rates are presently low, your lender might be offering their best deals to entice new clients/customers. Requesting your lender for a better rate or transferring to a better home loan with a new lender can save you more money. If you get a lower interest rate but retain your repayments just like before, then you are effectually making extra payments immediately.
