What has to be settled before signing: 1,000,000 principal over 30 years, equal instalment or equal principal, and whether to squeeze the term down to 20 years. The common line is that equal principal saves interest, but few people spell out how much it saves, how much more you pay up front, and when it overtakes. Run the same principal at the same rate period by period, and four numbers are enough to check the account.
Where the two formulas differ
Equal instalment keeps the monthly payment fixed: M = P × i × (1+i)^n ÷ ((1+i)^n − 1), where i is the monthly rate, the annual rate divided by 12, and n is the number of periods. Equal principal repays a fixed amount of principal each month (P ÷ n), with interest charged separately on the remaining balance, so the monthly payment falls month by month. The first spreads interest evenly across the whole term; the second lets interest fall along with the principal.
Two assumptions up front: the rate stays fixed for the whole term, and every amount is calculated from the exact formula and rounded to the cent. Real commercial mortgages are mostly priced off LPR and repriced annually, so any rate change forces a recalculation of every cell below; and a bank's amortisation schedule rounds each period to the cent, so a 30-year total can differ from these figures by a few jiao. Every difference in this article is obtained by subtracting the numbers exactly as shown in the tables, so you can check each item on a calculator.
The numbers at 3.0%
At an annual rate of 3.0%: equal instalment gives a monthly payment of 4,216.04, total interest over 30 years of 517,774.52 and total repayment of 1,517,774.52. Interest alone takes 2,500.00 of the first period, 59.3% of the payment, with only 1,716.04 actually going to principal. Equal principal starts at 5,277.78, ends at 2,784.72, falls by 6.94 a month and pays total interest of 451,250.00.
| Item (1,000,000 / 360 periods / 3.0%) | Equal instalment | Equal principal |
|---|---|---|
| First monthly payment | 4,216.04 | 5,277.78 |
| Last monthly payment | 4,216.04 | 2,784.72 |
| Change per month | Fixed | Down 6.94 |
| Interest share in the first period | 2,500.00, 59.3% | 2,500.00, 47.4% |
| Total interest over 30 years | 517,774.52 | 451,250.00 |
Under these conditions the two methods differ by 66,524.52 in total interest, while the early monthly payments differ by 1,061.74. That is the whole cost structure of the choice: pay more up front, or pay more at the end.
What half a percentage point does
The same loan at 3.5%: equal instalment gives 4,490.45 a month and 616,560.88 in total interest; equal principal starts at 5,694.44, ends at 2,785.88, falls by 8.10 a month and pays 526,458.33 in total interest, which is 90,102.55 less than equal instalment. Set the two rate levels against each other and going from 3.0% to 3.5% adds 274.41 to the monthly payment and 98,786.36 to interest over 30 years. A rate change acts the whole way through, unlike the repayment method, which only changes the distribution.
The term is another lever
At 3.5%, cutting 30 years to 20 raises the monthly payment from 4,490.45 to 5,799.60, an increase of 1,309.15, and cuts total interest from 616,560.88 to 391,903.32, a saving of 224,657.56. Shortening the term saves far more interest than switching repayment method, at the cost of a much higher monthly cash requirement. The two numbers have to be weighed together; no single choice is always better.
The month where the two methods cross
The equal-principal payment falls month by month while equal instalment stays fixed, so the two must cross somewhere. At 3.0%, equal principal still pays 4,222.22 in period 153 and drops to 4,215.28 in period 154, so the crossover is period 154, which is year 12, month 10; before that it is the more expensive of the two. At 3.5%, starting from 5,694.44, the crossover moves earlier to period 150.
But a monthly crossover is not the same as breaking even on the total. Add up the actual payments month by month and compare: at 3.0%, by period 306 equal principal has paid 1,290,937.50 against 1,290,108.34 for equal instalment, still 829.16 more; only in period 307 does equal principal at 1,294,090.28 come in under equal instalment at 1,294,324.38, ahead by 234.10 for the first time. At 3.5% the crossover comes earlier, in period 299. In other words, equal principal has to run a full 25 years and 6 months before it starts to pull ahead on cumulative outlay, and only after that does the saving appear on paper.
How interest leaves the monthly payment
The equal-instalment payment stays the same, but the split between its two parts keeps shifting. Here are a few points sampled period by period at 3.0%, set beside 3.5%:
| Period | Interest that period at 3.0% | Share of payment | Interest that period at 3.5% | Share of payment |
|---|---|---|---|---|
| Period 1 | 2,500.00 | 59.3% | 2,916.67 | 65.0% |
| Period 12 | 2,452.21 | 58.2% | 2,865.43 | 63.8% |
| Period 60 | 2,227.63 | 52.8% | 2,621.62 | 58.4% |
| Period 84 | 2,104.83 | 49.9% | 2,486.31 | 55.4% |
| Period 120 | 1,906.27 | 45.2% | 2,264.78 | 50.4% |
| Period 180 | 1,532.97 | 36.4% | 1,839.80 | 41.0% |
| Period 300 | 595.63 | 14.1% | 730.91 | 16.3% |
| Period 360 | 10.51 | 0.2% | 13.06 | 0.3% |
Interest first drops below principal in period 84 at 3.0%, and not until period 124 at 3.5%. Raising the rate by half a point does not just make the payment bigger; it stretches the slow repayment phase by 40 months.
How I settle on these numbers
Working the crossover out by hand is painful: equal principal sits above equal instalment for the first months and only then falls below it. I put the four inputs, principal, rate, periods and repayment method, into the Mortgage Calculator and have it list the period-by-period principal and interest table, looking mainly at how much the first month costs and which month the two methods cross. Once the payment is settled, I set it beside the result from the Income Tax Calculator, which is the only way to see what shape the money actually available this month takes.
Q: Does equal principal always save interest compared with equal instalment?
Yes, given the same principal, rate and term, because it pushes the remaining balance down sooner and interest is charged on that balance. Under these conditions the gap is 66,524.52 at 3.0% and 90,102.55 at 3.5%. But "saves interest" holds only on paper: if the extra 1,061.74 paid early could earn more than the loan rate elsewhere, ranking by total interest stops being the deciding factor, and this article does not make that call for you.
Q: How much does early repayment save?
It depends on the remaining balance and the remaining periods; you cannot simply scale down the total interest. Rerun the calculation with the term set to the years you actually plan to finish in, and you get a comparable number.
Q: Where does the jump from 4,216.04 to 4,490.45 come from?
Nothing changed but the monthly rate: 3.0% corresponds to 0.25% a month and 3.5% to about 0.2917%. In the formula a larger i also makes (1+i)^n larger, and the two effects together add 274.41 to the payment.
Q: Where does the 6.94 monthly decrease come from?
Equal principal repays a fixed amount of principal each month: 1,000,000 divided by 360 periods is 2,777.78. Interest is charged on the remaining balance, and the principal repaid no longer generates interest, so the decrease equals that principal times the monthly rate: 2,777.7778 × 0.25% gives 6.94, and at 3.5% it is 2,777.7778 × about 0.2917%, which gives 8.10.
Q: If I plan to clear the loan within ten years, should I still choose equal principal?
In these numbers the cumulative crossover comes in period 307, more than twenty-five years out. If you will actually clear the loan after ten years, the crossover never arrives and equal principal costs more the whole way. Its total interest is lower, but that lower figure only materialises if you carry the loan for the full thirty years. In that case what you should compare is the remaining balance under each method, not the total interest written into the contract.