Payments, amortisation and refinancing
An amortisation schedule separates principal and interest. An unlinked annuity loan has constant payments when its rate stays constant.
Interest usually forms more of early annuity payments, while principal grows later. Equal-principal loans repay the same principal each month, usually with falling payments at a constant rate. A grace period defers payments rather than cancelling them. Refinancing requires comparing total payments, early repayment charges, linkage and insurance. A longer term can lower monthly payments while raising total cost.
At zero interest, 120,000 over ten years requires 1,000 principal per month. Positive interest adds financing cost.
Compare 15 and 25 years using the same principal and a positive rate.
Official source ↗Check your understanding
Does a lower monthly payment prove a lower total cost?
- Yes, if the track has a new name
- No, compare all payments and costs
- Yes, always
Answer and explanation
No, compare all payments and costs. A longer term can raise total cost.
Does a grace period erase deferred payments?
- No
- Yes
- Only for self-build homes
Answer and explanation
No. Deferral is not forgiveness; interest may accrue.
Continue learning
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