Equal instalments or equal payments?
When we talk about different payment types, we are referring to equal instalments or equal payments. Equal payments on a loan involve paying approximately the same amount at the end of each month, e.g. if interest rate fluctuations are minimal or fixed. Payments are, therefore, more stable when compared with equal instalments, but the principal amount is paid off at a slower rate. You initially pay more interest and less towards the principal amount, but this trend is reversed later on during the loan period. Equal payments are generally more popular than equal instalments because monthly payments are lower. However, the loan is paid off quicker with equal instalments, and monthly payments are usually higher for most of the loan period. The principal amount is paid off in the same amount and distributed evenly over the loan period. Monthly payments also decrease later on during the loan period, and the interest and principal amount decrease steadily.
A fixed rate or variable rate and loan period
A fixed interest rate guarantees that interest rates will not rise (or fall) for a specified period (usually 3- 5 years). Fixed interest rates are generally higher than variable interest rates on non-indexed loans, which means that you pay more to fix them if market interest rates fall. However, variable interest rates can rise, fall or remain stable during the loan period, based on market conditions at any given time, such as the lender's financing costs, the Central Bank's key interest rate etc. You can fix interest rates on non-indexed loans with variable interest rates via so-called terms and conditions changes, which might be the best option if interest rate fluctuations are foreseeable. You could also ensure stable payments over the next 3-5 years.
The maximum loan period for mortgage loans is generally 40 years for market lenders. However, this does not mean that you have to take a 40-year loan. You can shorten the loan period if payments are manageable and you fulfil the loan's terms and conditions. It would be best to consider your ability to take a short term loan before making a final decision. The shorter the loan period, the less interest you pay and the faster you become debt-free.
Some good advice
You can explore the options using our mortgage calculator. The calculator provides a clear picture of the various loan types and gives you a good idea of the total associated costs according to type. However, the best option is always asking one of our mortgage advisors. You can book an appointment online and take advantage of our expert advice.