Fixed Principal Loan

In a fixed principal loan the principal portion of the installments remains constant for the whole term of the loan.

Each payment consists of the interest on the outstanding balance and a fixed fraction of the principal i.e. the loan amount divided by the number of payments.

As the outstanding balance decreases, the interest portion of each payment decreases. In combination with the fixed principal portion, this results in higher payments at the start of the loan, and lower payments towards the end of the loan.

Compared to interest only loans and standard loans, fixed principal loans generate the lowest total interest charge over the term of the loan.

The fact that principal payments remain constant can be preferrable in situations in which tax deductions are mainly based on principal repayments.

To see the amortization schedule, select the Show Details command in the Calculation menu.

To toggle between date and year/period view, click the first column header in the Details.

To change the start date, select the Start Date command in the Edit menu to open the Date Options dialog.

Input

• nominal annual rate
• compounding frequency
• payment frequency
• number of years or payments
• loan amount

Results

• fixed principal payment
• maximum payment
• total paid
• total interest

Examples

A debt of $10,000 with interest at 6 % compounded monthly is to be amortized by varying monthly payments consisting of equal principal fractions and a variable interest fraction over the next ten years, the first payment due in one month.

What will be the total interest charge for a fixed principal loan?

Input Nominal annual rate: 6 %
  Interest is compounded: monthly
  Payments are made: monthly
  Number of years: 10
  Loan amount: 10,000
     
Result Total interest: 3,025

Answer: $3,025.

   

Using the same data, what would be the total interest charge for a standard loan?

Just switch to the Installment Loan calculation and look up the Total interest result.

Answer: $3,322.46 or 10 % more.

   

Using the same data, what would be the total interest charge for an interest only loan?

Just switch to the Interest Only Loan calculation and look up the Total interest result.

Answer: $6,000 or about 200 % more.

 

Related topics

Nominal annual rate
Compound interest
Installment Loan
Rule of 78 Loan
Balloon Payment Loan
Interest Only Loan
Sinking Fund Loan
Prepaid Interest Loan
Extra Principal Payments Loan