1. Choose the Repayment Method First
With equal principal-and-interest payments, you pay a similar combined amount of principal and interest each month, assuming the interest rate remains unchanged. With equal principal payments, you repay the same principal amount each month, so the first payment is larger and the interest decreases over time. With a bullet repayment, you mainly pay interest during the term and repay the principal at maturity, so you need a plan for the maturity payment.
2. How to Calculate Equal Principal-and-Interest Payments
Monthly payment = loan principal × [monthly interest rate × (1 + monthly interest rate)^number of repayment months / {(1 + monthly interest rate)^number of repayment months - 1}]. This example assumes payments are made on the same day each month starting from the loan disbursement date, the annual rate remains at 4% for 20 years, and there are no fees or interest-only period. The monthly interest rate is 0.04/12 = approximately 0.00333, and the amounts below are rounded to the nearest thousand won. The monthly payment is approximately 606,000 won, and the total repayment is approximately 145.44 million won, including approximately 45.44 million won in interest. Actual interest may vary depending on the number of days used for calculation and the terms of the agreement.
3. How to Calculate Equal Principal Payments
Monthly principal = loan principal / number of repayment months, and monthly interest = remaining principal × monthly interest rate. This example assumes a principal of 100 million won, an annual rate of 4%, a 20-year term, and no changes to the interest rate, fees, or interest-only period. The monthly principal is approximately 416,667 won, and the first month's interest is approximately 333,333 won, making the first payment approximately 750,000 won. Because the interest decreases each month, the final payment is approximately 418,000 won, and total interest is approximately 40.08 million won. Actual amounts may vary depending on the number of days used to calculate interest and the terms set by the financial institution.
4. Choose a Repayment Method Based on Cash Flow
If the initial payment is difficult to manage, equal principal-and-interest payments may make budgeting easier. If you can handle the higher initial burden and want to reduce the principal faster, compare equal principal payments as well. With either method, payments may change when the rate is variable, and an interest-only period delays the immediate burden but reduces the principal more slowly.
5. Additional Costs Beyond the Interest Rate
When comparing products, do not look only at the advertised lowest rate. Check the rate that will actually apply to you and the conditions for preferential rates. Include stamp tax, guarantee fees, collateral-related costs, and early repayment fees in the total cost. Even if early repayment or refinancing reduces interest, it may not be beneficial immediately if the fees are greater than the savings.
6. Read the Calculation Results Safely
DSR is the proportion of your annual income represented by the annual principal and interest payments on all loans. DTI is the proportion of your annual income represented by the principal and interest payments on a mortgage plus interest on other debts. The regulatory limits for both measures vary by loan type, region, borrower conditions, and policy, so it is difficult to use a single figure as a personal recommendation. Being eligible for approval under the regulations does not mean you can comfortably cover your living expenses. Calculate income reductions and interest-rate increases separately, and confirm the actual payment schedule using the repayment schedule provided by your financial institution.