Equal Payment vs Equal Principal
How the two methods work
Equal-payment amortization keeps the total monthly payment constant; early payments are mostly interest. Equal-principal amortization repays the same principal each month, so interest falls as the balance drops.
When equal principal wins
- When you want to minimize total interest
- During falling rates or frequent prepayments
- When you have enough early capacity
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Frequently Asked Questions
What is the difference between equal payment and equal principal?
Equal payment keeps the monthly amount fixed (easier early on) but costs more total interest. Equal principal repays the same principal each month, saving interest but starting with a higher payment.
Which one is cheaper?
At the same rate, equal principal is cheaper in total interest. But if early cash flow is tight, equal payment is the practical choice.