HBW KNOWLEDGE / BASICS
Repayment: what actually reduces your mortgage balance
A repayment mortgage payment includes interest and principal. Only the principal element reduces what you owe.
Separate interest from repayment
Interest is the price of borrowing. Principal repayment pays back the loan. With a constant annuity, the interest element falls as the outstanding balance decreases, while the principal element rises. The initial repayment percentage describes only the starting point.
The same borrowing, different starting payments
| €300,000 loan, assumed borrowing rate 4% | Initial monthly payment |
|---|---|
| Initial repayment 2% | €1,500 |
| Initial repayment 3% | €1,750 |
The additional €250 monthly repayment accelerates debt reduction. The later balance depends on the actual payment schedule, drawdown dates and extra repayments. The interest rate is a calculation assumption only.
Extra repayment is a contractual feature
Your agreement determines whether extra repayments are allowed without additional charges and within what limits. Check the reference amount, deadlines and minimum sums. Plan them only from money left after sufficient reserves.
Choose flexibility deliberately
- Have the starting payment and intended repayment age calculated.
- Compare the balance at the end of the fixed-rate period in writing.
- Check repayment-rate changes, including limits and costs.
- Read annual extra-repayment rights rather than assuming they exist.
Frequently asked questions
Does 2% repayment mean a 50-year term?
Not directly. With a constant annuity, the repayment element changes over time. The term needs to be calculated for the actual loan.
Should I make every possible extra repayment?
Additional payments may save interest. First consider your reserves, other commitments and contractual conditions.
What does this mean for your plans?
Discuss your purchase price, own funds and intended borrowing with us.
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