Principal + Interest payments
In a principal + interest loan, the principal (original amount borrowed) is divided into equal monthly amounts, and the interest (fee charged for borrowing) is calculated on the outstanding principal balance each month.
This means the monthly interest amount declines over time as the outstanding principal declines. As a result, a principal + interest loan results in less interest than a blended payment loan.
More about principal + interest payments
Below is an example of a $100,000 loan with a 12-month amortization, a fixed interest rate of 5% and equal monthly payments of principal + interest with a declining total payment. The principal payment stays the same each month, while the interest payments and total monthly payments decline.
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