Annuity loan or serial loan?
What really suits you best and which type of loan should you choose?
Annuity loans are the most common form of loan. You will then pay the same monthly amount throughout the term of the loan, provided that the interest rate is stable. The monthly amount consists of installments and interest costs. At the start, the installment portion is smaller, and the interest portion is larger. As the loan is paid off, the installment portion increases, and the interest portion decreases.
An annuity loan has the same installment amount each month, which makes the product predictable. It is therefore a good fit if you like predictability and want a slightly more spacious economy. Annuity loans are a good option for those who are going to buy their first home, renovate or start a family.
A serial loan may be suitable for you who borrow less than your borrowing capacity can handle, because you can afford to pay it. With a serial loan, you pay off the loan with a higher installment amount at the start, but you will have less and less to pay as the loan is paid off. The installment part is the same every month, but the interest part falls. The result is that the monthly amount becomes smaller for each payment to the bank. If you can afford to maintain the large payments at the start of a serial loan, you will pay less interest in total over 25 years than with an annuity loan with the same duration.
Alternatively, an annuity loan with a shorter term can be at least as favorable as a serial loan. It may also suit you who have plans for the future or know of upcoming changes in your own finances, such as retiring before the loan is paid off.