Equal Installment vs Equal Principal: Which Mortgage Saves More
Same loan amount, same rate — yet the two repayment methods can differ by tens of thousands in total interest. Here's how to choose.
When you take out a mortgage, the bank usually asks you to pick between an equal-installment plan and an equal-principal plan. Monthly payments, total interest, and early-years burden all differ — yet many people sign without understanding the trade-off.
The core difference
- Equal installment: a fixed monthly payment. Early payments are mostly interest; later payments shift toward principal.
- Equal principal: a fixed monthly principal portion. Interest is charged on the remaining balance, so the payment shrinks every month.
Our Loan Calculator makes it concrete: on a $1,000,000 loan over 30 years at 4%, equal installment costs about $4,774/month. Equal principal starts near $6,111/month and drops by roughly $11 each month.
How much interest is at stake
In that same example, equal installment totals about $719,000 in interest while equal principal totals about $602,000 — a gap of roughly $117,000. The difference comes from how fast the balance shrinks: equal principal cuts the interest-bearing base sooner.
So is equal principal always better?
Not necessarily. Its early payments run about 28% higher, which is real pressure for a household that just bought a home. If the extra monthly cost squeezes your lifestyle or pushes you toward credit-card debt, the interest you save isn't worth it.
What if you plan to prepay?
If you expect to clear the loan within 5 to 10 years, the gap between the two methods narrows sharply, because much of the interest never accrues. Focus instead on prepayment penalties and on shortening the term rather than lowering the monthly payment. Compare scenarios with the Mortgage Calculator.