Work out your monthly repayment and the total interest you'll pay over a loan's term. Compare equal-payment, equal-principal and interest-only methods side by side.
For the same loan terms, total interest is lowest with equal principal, higher with equal payment, and highest with interest-only. The most reliable way to cut total interest is to shorten the loan term.
An equal-payment (amortising) loan uses the annuity formula: payment = principal × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where r is the monthly rate (annual rate ÷ 12) and n is the total number of payments.
Borrow 300,000 at 4.0% over 30 years (360 payments): r = 0.04 ÷ 12 ≈ 0.003333, and the monthly payment works out to about 1,432. Over the full term you repay roughly 515,600, of which about 215,600 is interest.
The payment stays flat but its composition doesn't. In month one, 1,000 of that 1,432 is interest and only 432 touches the principal. As the balance falls, the interest share shrinks and the principal share grows.
Equal payment keeps the monthly total constant. It is easy to budget around, which is why it is the default for most mortgages.
Equal principal divides the principal evenly across the term and adds interest on the outstanding balance. The first month is the most expensive and every month after is slightly cheaper. Because the balance falls faster, total interest is the lowest of the three.
Interest-only pays nothing off until maturity, when the whole principal falls due. The monthly burden is the lightest and the total interest is the heaviest, because the balance never shrinks.
On the 300,000 / 4.0% / 30-year example, total interest lands at roughly 180,500 for equal principal, 215,600 for equal payment, and 360,000 for interest-only. The entire difference comes from one variable: how early the principal starts falling.
Hold 300,000 at 4.0% and change only the term. Thirty years costs about 215,600 in interest; twenty years about 136,300; fifteen years about 99,400. Halving the term more than halves the interest.
The monthly payment moves the other way: about 1,432 over 30 years, 1,818 over 20, and 2,219 over 15. The choice is a straight trade between lifetime interest and what you can carry each month.
A one-percentage-point difference in rate shifts 30-year interest by roughly 60,000 on this balance. When you're weighing a refinance, your real gain is that difference minus the early-repayment penalty and the cost of re-registering the loan.
A fixed rate holds for the agreed period. That is the case where this calculator's output lines up most closely with reality.
A variable rate is a benchmark plus a margin and typically resets every three, six or twelve months. Since this tool assumes one rate for the whole term, read its output as "what it costs if today's rate holds".
For a hybrid loan — fixed for the first few years, then variable — running the calculation twice, once per segment, gets you much closer than a single pass.
During an interest-only grace period you pay interest but nothing off the balance. Attach a three-year grace period to a 30-year loan and you pay interest only for three years, then repay the entire principal across the remaining 27.
The balance is untouched throughout, so the grace-period interest is pure additional cost — and the payment for the remaining 27 years is higher than it would have been spread over 30.
It is a cash-flow instrument for a tight period, not a way to make a loan cheaper.
Early-repayment penalties apply if you clear the loan inside the agreed window (commonly three years), usually tapering with time remaining. Leaving this out of a refinance comparison can reverse the answer.
Origination, registration and guarantee fees attach to most secured loans, and guarantee premiums to many unsecured ones.
Conditional rate discounts — for salary deposits, card spend, or direct debits — disappear when the condition lapses. If you calculated with the discounted rate, that discount is an assumption.
How much you can actually borrow is set by debt-service and loan-to-value limits and by credit assessment, none of which this calculator evaluates.
For an equal-payment (annuity) loan, each month combines interest on the remaining balance plus part of the principal, so the total payment stays constant until the loan is paid off.
Equal payment keeps every monthly amount the same; equal principal repays a fixed principal each month, so payments start higher and shrink over time — usually with less total interest.
You pay only interest each month and repay the full principal in one lump sum at maturity. Monthly payments are the lowest of the three methods, but total interest is the highest.
This calculator only sees principal, rate and term. A real loan adds origination and registration fees, guarantee premiums, early-repayment penalties and sometimes an interest-only grace period, and a variable rate resets every few months. Your real cost is normally higher than the figure here.
What this tool bases its numbers on, and how far those numbers go.
Equal payment: payment = principal × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1). Equal principal: principal ÷ n each month plus interest on the balance. Interest-only: balance × r each month. (r = annual rate ÷ 12, n = number of payments.)300,000 at 4.0% over 30 years (360 payments): r ≈ 0.003333, monthly payment ≈ 1,432, total interest ≈ 215,600.