Annuity loan or serial loan?
What’s actually best for you, and which type of loan should you choose?
September 9, 2023
eiendoms-admin
An annuity loan is the most common type of loan. With this type of loan, you pay the same monthly amount throughout the entire term of the loan, provided that the interest rate remains stable. The monthly payment consists of principal and interest. At the beginning, the principal portion is smaller, and the interest portion is larger. As the loan is paid down, the principal portion increases, and the interest portion decreases.
An annuity loan has equal monthly payments, which makes the product predictable. That’s why it’s a good fit if you value predictability and want a little more financial flexibility. An annuity loan is a good option for those buying their first home, renovating, or starting a family.
Alternatively, an annuity loan with a shorter term may be at least as advantageous as a serial loan. It may also be a good fit for you if you have future plans or are aware of upcoming changes in your financial situation, such as retiring before the loan is paid off.
A step-down loan may be right for you if you’re borrowing less than your borrowing capacity allows, because you can easily afford the payments. With a step-down loan, you pay off the loan with higher monthly payments at the beginning, but your payments will gradually decrease as the loan is paid down.
The principal portion remains the same each month, but the interest portion decreases. As a result, the monthly payment to the bank gets smaller with each payment. If you can afford to maintain the large payments at the beginning of a serial loan, you’ll pay less interest in total over 25 years than you would with an annuity loan of the same term.
Annuity loan
Here is a visual illustration of an annuity loan, showing how each annual payment consists of a combination of interest and principal over time:
Explanation:
- Total annual payment (blue line): This amount remains constant throughout the term of the loan.
- Interest portion (orange line): Starts high because interest is calculated based on the entire loan amount, but decreases as the debt is paid down.
Amortization Rate (green
Serial loans
Here is a visual illustration of an installment loan, showing how the payments change over time:
Explanation:
- Total payment (blue line): Starts high and gradually decreases, because interest is calculated based on an ever-decreasing outstanding balance.
- Interest portion (orange line): Decreases steadily as the loan is paid off.
- Amortization rate (green line): Remains constant each year, which is typical for serial loans.
Free and fast case management
With us, you will be assigned a dedicated advisor who will help you every step of the way. After
a pleasant conversation with you, we map out your financial situation.
This is what we can help you with
