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MasterMath

Constant Principal Loan Calculator

On 150,000 at 4% over 30 years, the first payment is 916.67 and the last is 418.06. You pay 90,250 in interest instead of 107,804 — 17,554 less than a level-payment loan.

Currency and number format for

First payment

—

First payment—
Last payment—
Principal repaid each month—
Total interest—
You will repay in total—
Saving against a level-payment loan—

How this was worked out

    The formula

    payment = fixed principal + interest on the outstanding balance

    Where it comes from

    Here the principal repaid is the same every month and only the interest changes. Since the balance falls in a straight line, so does the interest, and the payment shrinks with it. The loan starts expensive and gets cheaper every single month.

    How to work it out by hand

    1. Divide the loan by the number of payments: that is the fixed principal portion
    2. Work out the interest on the current balance
    3. Add the two for this month's payment
    4. Reduce the balance by the fixed principal and repeat

    What is worth knowing

    This structure is standard in parts of Latin America and in some commercial lending, and rarer in Anglophone consumer markets, where level payments dominate. The trade-off is plain: you pay noticeably less interest overall, because the balance falls faster from the very first month, but the early payments are far higher — 916.67 against 716.12 here, nearly 30% more at exactly the moment most borrowers are most stretched. It is the better deal for anyone who can afford the start, and it is unaffordable for anyone who is borrowing at their limit.

    Frequently asked questions

    Why does the payment fall every month?

    Because the principal portion is fixed and the interest is charged on a balance that shrinks by that same fixed amount. Less balance means less interest, and the payment follows.

    Is it cheaper than a level-payment loan?

    Yes, in total interest, because the balance falls faster from the start. It is more expensive in the early months, which is the trade-off.

    Where is this used?

    Widely in Latin American banking and in some commercial lending. In the US and UK, level-payment amortisation is the norm for consumer loans.

    Can lenders let me choose?

    Sometimes, especially on commercial or construction lending. On standard consumer mortgages it is rarely an option outside markets where it is the default.