How the Mortgage Loan Repayment Length Affects the Rate of Installments: Analysis and Examples

The length of the mortgage repayment period is one of the key factors that affects the amount of monthly installments. The choice of the loan repayment period has a direct impact on how much of the borrower’s monthly income will have to allocate to repay the loan. In this article, we will look at how the length of loan repayment affects the amount of installments, and we will also present two examples to better understand this relationship.

The influence of the Repayment Length on the Installment Rate

Shorter Repayment Period:

• Advantages: Choosing a shorter mortgage repayment period means higher monthly installments, but also a smaller total amount of interest to pay over the life of the loan. This can mean significant savings over the entire repayment period.
• Disadvantages: Higher monthly installments may be a greater burden on the household budget and limit the borrower’s financial possibilities for other expenses or investments.

Longer Repayment Period:

• Advantages: A longer repayment period allows lower monthly installments, which makes the loan more affordable on a daily basis and may help avoid cash flow problems.
• Disadvantages: On the other hand, spreading the repayment over a longer period of time means that the total amount of interest paid to the bank will be higher. Ultimately, the borrower will pay more for the same loan amount.

Examples

Example 1: Mortgage Loan for PLN 300,000 at an Interest Rate of 4%

• Repayment period: 20 years
  • Monthly installment: approximately PLN 1,817
  • Total amount of interest: approximately PLN 136,080
• Repayment period: 30 years
  • Monthly installment: approximately PLN 1,432
  • Total amount of interest: approximately PLN 215,520

Example 2: Mortgage Loan for PLN 500,000 at an Interest Rate of 4%

• Repayment period: 20 years
  • Monthly installment: approximately PLN 3,028
  • Total amount of interest: approximately PLN 226,800
• Repayment period: 30 years
  • Monthly installment: approximately PLN 2,387
  • Total amount of interest: approximately PLN 359,200

Summary

Choosing the length of the mortgage repayment period is of fundamental importance for household finances. A shorter repayment period can result in significant interest savings, but requires greater financial discipline and higher monthly payments. In turn, a longer repayment period lowers the monthly burden, but increases the total cost of the loan. The decision on the length of the repayment period should therefore be carefully considered and tailored to the individual needs and financial capabilities of the borrower.