Core answer: ¥1M loan, 30 years, 3.0% — equal payment: ¥4,216/month, total interest ¥518k; equal principal: ¥5,278 first month (−6.9 monthly), total interest ¥451k. Principal saves ¥67k of interest, but its payments stay HIGHER than equal payment for the first 11 years. Cash flow first → equal payment; interest savings first → equal principal.
The two formulas
Equal payment: fixed monthly amount; the principal share rises and the interest share falls month by month.
Payment = loan × r × (1+r)ⁿ ÷ [(1+r)ⁿ − 1]
Equal principal: fixed principal each month + interest on the remaining balance, so the payment declines.
Month k payment = loan ÷ n + (loan − principal repaid) × r
The ¥1M head-to-head
¥1M, 30 years (360 periods), 3.0% annual (0.25% monthly):
| Item | Equal payment | Equal principal |
|---|---|---|
| Monthly | ¥4,216 (fixed) | ¥5,278 first, −6.9/month |
| Payment drops below equal payment | — | Period 136 (~11 years) |
| Total interest | ¥518k | ¥451k |
| Total repaid | ¥1.518M | ¥1.451M |
| Interest as % of principal | 51.8% | 45.1% |
Where the money goes each month
Same ¥1M/30Y/3.0% — the principal/interest split at key periods:
| Period | Equal payment (principal / interest) | Equal principal (principal / interest) |
|---|---|---|
| #1 | 1,716 / 2,500 | 2,778 / 2,500 |
| #60 | 1,943 / 2,273 | 2,778 / 2,083 |
| #120 | 2,295 / 1,921 | 2,778 / 1,667 |
| #240 | 3,206 / 1,010 | 2,778 / 833 |
With equal payment, most of what you pay in the first 10 years is interest — the truth behind "I paid for years and the principal barely moved." With equal principal, ¥2,778 of principal leaves every single month; the debt visibly shrinks.
Rate sensitivity
The higher the rate, the bigger the interest gap between the two methods (¥1M/30Y):
| Annual rate | Equal payment interest | Equal principal interest | Gap |
|---|---|---|---|
| 2.6% (housing fund) | ¥441k | ¥391k | ¥50k |
| 3.0% | ¥518k | ¥451k | ¥67k |
| 3.6% | ¥637k | ¥542k | ¥95k |
| 4.2% | ¥760k | ¥633k | ¥127k |
Decision table
| Your situation | Recommendation |
|---|---|
| Payment already > 40% of income | Equal payment — protect cash flow |
| High, stable income; want less interest | Equal principal |
| Planning to prepay within 5-10 years | Equal principal (fast early principal reduction compounds the saving) |
| Rising income, tight budget now | Equal payment, prepay later |
| Housing-fund loan (already low rate) | Little difference — follow cash-flow preference |
How prepayment interacts
Equal principal pays down the balance faster early, so less principal remains when you prepay — the "shorten the term" saving has already been partly consumed. Equal payment leaves more balance outstanding early, giving prepayment more leverage. So "planning a large prepayment within 5 years" can make equal payment + prepay competitive with the pure principal route.
Common mistakes
- "Equal principal is always better": the saving is bought with higher early payments. ¥1,062 more in month one on a ¥1M loan — if that squeezes quality of life or your emergency fund, it is not worth it.
- "Equal payment is a bank trap": both methods charge interest on the remaining balance; the bank collects not one extra yuan. Equal payment totals more only because the balance falls slower.
- "The lower the payment the better": the safety line is payments within your capacity — generally ≤ 40% of household monthly income.