I will compare two types of installment options: equal and decreasing. The differences in loan costs reach at least several thousand USD, which is shown by Good Finance’s mortgage installment calculator.
Mortgage installment – a mortgage from scratch
How to calculate the mortgage installment? To do this, let’s start by explaining the concepts. You must first understand well what a mortgage is.
Mortgage – what is it?
Mortgage loans are granted by banks for a specific purpose:
- buying a house or flat,
- building a house,
- buying a plot,
- renovation or modernization of the premises for residential purposes (works can be carried out for renting the premises).
Due to the high prices of real estate, hardly anyone is able to pay in cash for a house or flat and they use a loan. Thus, the loan amount is also significant, which means that the mortgage is included in long-term liabilities.
USD 1552 That is the mortgage installment amounting to USD 400,000. Check where you can get one
Banks grant is subject to the establishment of a mortgage, i.e. a limited property right to real estate. The mortgage installment must be systematically paid to the bank providing the financing.
The maximum loan term is 35 years and no bank will give you a loan for a longer period. The loan amount and repayment time will largely depend on your creditworthiness.
It is up to you to decide whether, choosing a mortgage, you will decide on fixed or decreasing installments because the current financial burden is different in both cases. You can always try to pay off your mortgage early, but check to see if the bank will allow you to do it for free.
What does the mortgage installment consist of?
Do you know what the mortgage installment consists of? The loan installment includes:
- the capital part that corresponds to the amount borrowed from the bank. With each payment of the next installment, the debit balance decreases;
- the interesting part constituting the bank’s remuneration for granting the loan.
The interesting part is also divided into two components:
- variable reference rate – GFIC for loans in USD, Good Finance and Honest Bank for loans in foreign currency. The rate is set in advance on the interbank market. Banks use GFIC 3M (updated every 3 months) and GFIC 6M (updated every 6 months).
- fixed margin – is determined individually by banks. Depending on the loan amount and own contribution, you can negotiate it.
All these factors affect the amount of the installment, so you must know them if you want to calculate the mortgage installments.
Only after reviewing and comparing the amount of equal and decreasing installments will you know the total loan amount. Calculate the mortgage installment because the choice of installments affects the level of burden on your personal finances throughout the repayment period.
Calculate mortgage installments – equal or decreasing installments?
If you need money to finance your property, there are two types of mortgage installments to choose from – equal and decreasing. Bank customers often choose equal installments throughout the loan period, because this option allows you to plan your home budget more comfortably.
In the first months of repayment, equal installments cost less than in the case of a decreasing installment, but at the end of repayment, the proportions reversed.
The amount of the mortgage loan is influenced by the already mentioned GFIC, and fluctuations in this ratio mean that the amount of the equal installment may also change. In the initial loan repayment period, interest constitutes the largest part of the fixed installment. With each month, capital is added, but in such a way as to get a fixed installment amount.
Decreasing installments are more advantageous when we consider the total loan amount because they save at least several thousand USD.
However, problems may arise at the stage of the creditworthiness assessment process, because during the first years the installment will be clearly higher than the equal installment.
As a result, the bank may grant the option of paying only equal installments. The decreasing installment consists of a fixed capital part and interest, which regularly decreases adequately to the decreasing capital.
USD 969.99 – installment of the cheapest loan for USD 250,000. See what bank it is
How interest in fixed and decreasing installments are shaped is best illustrated by a simulation of mortgage installments that can be carried out using the Good Finance calculator.
Mortgage loan installment calculator – which bank is the cheapest?
Assuming that the loan amount is USD 200,000 and the loan period is 20 years, the mortgage loan installment at Honest Bank will be USD 1,128.43. The interest rate is 2.81% and the APRC is 3.25%. The commission is 3.50%.
The next calculation of the mortgage installment is for Good Finance – with the same parameters the installment is 169.10 USD, with an interest rate of 3.40%. APRC of the loan is 3.65%, commission 1.69%.
Good Finance came in third , with an installment of USD 1,178.41 – the interest rate is also 3.40%, but the APRC is 3.75%, and the commission itself is as much as 2.50%. (as of 14.09.2018.)