Three ways to repay the same loan
For a fixed interest rate and term, there’s more than one way to structure the payments:
- Equal payment (annuity) — you pay the same total amount every month. Early on, most of it is interest; later, most of it is principal.
- Equal principal — you repay the same amount of principal every month, so the payment (principal + interest) is largest at the start and shrinks every month as the balance falls.
- Interest-only, then balloon — you pay only the interest each month, and the entire principal is due in one lump sum (“balloon”) at the end.
Worked example
Loan amount 100,000,000, annual rate 4%, term 30 years (360 months):
| Method | First payment | Last payment | Total interest |
|---|---|---|---|
| Equal payment | 477,415 | 477,415 | 71,869,506 |
| Equal principal | 611,111 | 278,704 | 60,166,667 |
| Interest-only + balloon | 333,333 | 100,333,333 | 120,000,000 |
Equal principal costs the least in total interest because the balance falls fastest. Interest-only costs the most, because the full 100,000,000 keeps accruing interest for all 360 months before it’s repaid in the final balloon payment.
The formulas
For a loan amount P, a monthly rate i (annual rate ÷ 12) and n months:
- Equal payment: payment = P × i ÷ (1 − (1 + i)⁻ⁿ). This is the same amount every month; the split between principal and interest changes each month.
- Equal principal: the principal portion is a constant P ÷ n every month; the interest portion is the remaining balance × i, so it shrinks as the balance falls.
- Interest-only: each payment before the last is balance × i (the balance never changes), and the final payment adds the full remaining principal.
How rate and term change the payment
A higher rate raises every method’s total interest, but it affects equal payment the most, because a bigger share of the early payments goes to interest, so the principal falls more slowly. A longer term lowers the monthly payment under equal payment, but it increases total interest, because the balance stays outstanding — and accruing interest — for longer.
What this calculator doesn’t do
This is pure principal-and-interest math at a constant rate. It doesn’t include origination or account fees, credit insurance, prepayment penalties, a grace period, or any country’s lending limits or regulations — check those with your actual lender.