Korean Loan Repayment Simulator

Borrow the same amount at the same rate and the way you repay it still changes both what you pay each month and the total interest over the life of the loan. Enter the principal, the interest rate, the term and any interest-only grace period, and this calculator sets the two standard methods side by side: equal instalments, where every payment is the same from the first month to the last, and equal principal, where the first payment is the largest and each one after it is a little smaller.

The difference comes down to two numbers: the total interest you save by choosing equal principal, and the extra you have to pay in the first month to get it. Weighing "how much can I carry each month right now" against "how much less do I want to pay in the end" is what the calculator is for.

Most people meet the choice for the first time on a mortgage application form, where a box asks which repayment method you want. Seeing both monthly burdens before you sit down at the bank is the point. A young couple whose income is modest now but expected to grow suits equal instalments; someone with room in the budget today who wants to minimise total interest suits equal principal.

It also serves anyone considering a loan with a grace period, the structure where you pay only interest while building a house or starting a business and begin repaying principal later. The principal sits untouched during that time, so total interest rises. Adding and removing the grace period shows exactly what it costs.

There is no tax law or regulation here, just the standard arithmetic of loan contracts. First the annual rate is divided by twelve for a monthly rate and the term is converted to months. During any grace period you pay only the principal times the monthly rate each month, and the amortising period is the full term minus the grace months.

Equal instalments fix a single monthly payment: the principal times the monthly rate times (1 + monthly rate) raised to the number of months, divided by that same power minus one. Early payments are mostly interest with only a sliver of principal, and the principal share grows toward the end. Total interest is the monthly payment times the number of months, minus the principal.

Equal principal divides the principal by the number of months and repays that same slice every month, with interest on the remaining balance added on top. Because the balance falls every month, so does the interest and so does the payment. The first payment is one principal slice plus a month's interest on the whole loan; the last is one slice plus the interest on that single slice. Total interest is the monthly rate times the principal times (months + 1), divided by two.

Suppose you borrow ₩500 million at 4.74% a year over 30 years with no grace period. With equal instalments you pay ₩2,605,224 every month for 360 months, and total interest comes to ₩437,880,551. Everything paid until the loan is cleared adds up to ₩937,880,551.

With equal principal the first payment is ₩3,363,889, falling a little each month to ₩1,394,375 in the final month. Total interest is ₩356,487,500, which is ₩81,393,051 less than equal instalments. The price of that saving is ₩758,665 more in the first month. A first-month gap of that size grows into a ₩81,393,051 difference over 30 years.

The first is concluding that equal principal is always better because it costs less interest. The saving comes from repaying principal faster early on, so if that money could earn more elsewhere than the loan rate, equal instalments win. The second is rejecting equal principal on the strength of the first payment alone. Its payments shrink every month and drop below the equal-instalment figure somewhere around the middle of the term.

The third is treating a grace period as free time. Interest still goes out every month during it, and because the amortising period is shorter, the monthly payment after the grace period ends is larger, not smaller. The fourth is entering a variable rate as if it were fixed. The calculation assumes the rate you enter holds to the end, so with a variable-rate loan try several rates and look at the range. Finally, early repayment fees, stamp duty and guarantee fees are not included; the real cost is somewhat higher than the total interest shown.