Borrow ₩300 million at 4.32% for 30 years and the equal-instalment method (원리금균등) costs ₩235.7 million in interest, while the equal-principal method (원금균등) costs ₩194.9 million. Same loan, same rate, same term — ₩40.79 million apart. The catch is that equal-principal costs ₩425,194 more in month one, and the two monthly payments do not cross over until year 11, month 11. The calculator below runs both methods at once and shows you the gap.
| Year | Monthly that year | Year-end balance |
|---|
Results update as you type, and the method you did not pick is calculated too and compared in the box above. Equal instalment keeps the monthly payment flat; equal principal starts highest and falls every month. Prepayment fees, stamp duty, guarantee fees, mortgage registration costs and future rate moves on a variable loan are not included — these are estimates.
The run shown here — ₩300M, 4.32%, 30 years
The defaults are set to real market conditions. 4.32% is the Bank of Korea's weighted average rate on new bank mortgage lending for May 2026, and ₩300 million over 30 years is the most common shape of an apartment loan in the Seoul metropolitan area. Here is that run.
Reading the numbers straight off the screen: equal instalment charges ₩1,488,140 a month, 360 times. Equal principal starts at ₩1,913,333 and falls every month to ₩836,333 at the end. Total interest is ₩235.7M and ₩194.9M respectively.
What actually differs between the two
The names are confusingly similar. The difference is what is held constant. Equal instalment fixes the monthly payment (principal plus interest), while equal principal fixes the principal repaid each month. Fixing the principal makes the balance fall faster, and a smaller balance accrues less interest. The entire interest gap comes from that.
| Item | Equal instalment | Equal principal | What it changes |
|---|---|---|---|
| Held constant | Monthly payment | Monthly principal | How fast the balance falls |
| First payment | ₩1,488,140 | ₩1,913,333 | ₩425,194 more |
| Final payment | ₩1,488,140 | ₩836,333 | Later burden drops by half |
| Total interest | ₩235.7M | ₩194.9M | ₩40.79M apart |
| Balance after 5 years | ₩272.7M | ₩250.0M | ₩22.7M more paid down |
| DSR assessment | Flat monthly figure | Assessed on the first month | Lower approved amount on the same income |
That last row trips people up in practice. Equal principal is cheaper overall, but the bank sizes your loan against the largest monthly payment — the first one. On the same income, choosing equal principal can mean being approved for less. If your borrowing limit is tight, settle the limit question first and pick the method second.
Where it flips — three crossover points
"Equal principal is cheaper" is true, but when you actually feel it is rarely spelled out. On ₩300M at 4.32% over 30 years there are three separate crossovers.
| What flips | When | Figures at that point | What it means |
|---|---|---|---|
| Monthly payment | Year 11, month 11 (payment 143) | ₩1,487,333 vs ₩1,488,140 | You pay more every month until then |
| Cumulative paid | Year 23, month 9 (payment 285) | Total paid to date finally crosses | Leaving before this means no saving |
| Outstanding balance | From month one | ₩346,000 apart after payment 1 | Better from day one if you sell or prepay |
Condensed into one line: the interest saving of equal principal only completes if you run to maturity, but the balance advantage exists from the first month. Go the full 30 years and you are ₩40.79M ahead. Sell or refinance within five years and you will have paid ₩20.2M more (₩109.49M against ₩89.29M over 60 payments) while owing ₩22.7M less — which makes equal principal closer to forced saving than to a discount.
How the gap moves with term and rate
₩40.79M is specific to 30 years at 4.32%. The longer the term and the higher the rate, the wider the two methods diverge. On a 10-year loan the gap narrows to ₩4.64M, which is rarely worth the heavier early payments.
| Term (₩300M at 4.32%) | Equal instalment monthly | Equal instalment interest | Equal principal interest | Gap |
|---|---|---|---|---|
| 10 years | ₩3,083,188 | ₩69.98M | ₩65.34M | ₩4.64M |
| 15 years | ₩2,267,478 | ₩108.1M | ₩97.74M | ₩10.41M |
| 20 years | ₩1,868,923 | ₩148.5M | ₩130.1M | ₩18.40M |
| 30 years | ₩1,488,140 | ₩235.7M | ₩194.9M | ₩40.79M |
| 40 years | ₩1,314,175 | ₩330.8M | ₩259.7M | ₩71.06M |
The 40-year row is the one to study. Stretching from 30 to 40 years shaves about ₩174,000 off the monthly payment but adds ₩95.07M in interest. Lengthening the term is the easiest way to lower a monthly payment, and that is the price. Note that as of July 2026, mortgages in the Seoul metropolitan area and other regulated zones are capped at a 30-year term, so 40 years is not on the table there.
The formulas, and where they come from
With P as the principal, r as the monthly rate (annual ÷ 12 ÷ 100) and n as the number of payments (years × 12):
- Equal instalment — M = P × r × (1+r)n ÷ ((1+r)n − 1). Each month's interest is the previous balance × r; the rest of M reduces the principal.
- Equal principal — the principal portion is fixed at P ÷ n, and the payment that month is P ÷ n + previous balance × r.
Both are derived from the definitions published by Korea's Financial Supervisory Service on its FINE repayment-methods page — equal instalment as "a fixed monthly amount calculated in advance from principal and interest to maturity", equal principal as "the principal divided evenly across the loan term". No public agency page publishes the formulas themselves, so they are derived here from those definitions. Cross-check any figure against the FSS FINE loan interest calculator or the Korea Housing Finance Corporation's monthly repayment lookup. FINE truncates below the won, so the last digits may differ slightly.
The limit comes first — how DSR sizes your loan
Choosing a repayment method is the second decision. The first is how much you can borrow at all, and in Korea that is set by DSR (Debt Service Ratio).
DSR = (annual principal + interest on all debt ÷ annual income) × 100 — mortgages, personal loans, car finance and card loans are all counted together.
The ceiling is 40% at banks and 50% at non-bank lenders. But the rate used in the assessment is not your contract rate. A buffer called stress DSR is added to price in future rate rises. The rules in force from 1 July to 31 December 2026 differ sharply by region.
| Category | Stress rate | Applied share | Effective add-on |
|---|---|---|---|
| Mortgage, metropolitan / regulated zones | 3.0% | 100% | +3.00pp |
| Mortgage, other regions | 1.5% | 50% | +0.75pp |
| Personal loans (total debt above ₩100M) | 1.5% | 100% | +1.50pp |
The "1.5pp stress rate" repeated across the internet is a 2025 figure and no longer correct for the capital region. Here is what it does to a limit, assuming 30 years, equal instalment, a 4.32% contract rate and no other debt.
| Annual income | Monthly capacity (40%) | Without stress DSR | Other regions (+0.75pp) | Metropolitan (+3.00pp) |
|---|---|---|---|---|
| ₩40M | ₩1,333,333 | ₩268.8M | ₩246.4M | ₩194.1M |
| ₩60M | ₩2,000,000 | ₩403.2M | ₩369.6M | ₩291.2M |
| ₩80M | ₩2,666,667 | ₩537.6M | ₩492.8M | ₩388.2M |
In all three cases the metropolitan limit is 28% lower than the unstressed figure. Existing debt cuts it further. On a ₩60M income, adding a five-year personal loan at 5.49% (the May 2026 average) works out like this:
- No personal loan → mortgage limit ₩291.2M
- ₩30M personal loan (₩593,894 a month) → limit ₩204.7M, down ₩86.5M
- ₩50M personal loan (₩989,824 a month) → limit ₩147.1M, down ₩144.1M
A ₩30M personal loan costs you ₩86.5M of mortgage capacity, because its five-year term makes the monthly payment large. Clearing personal loans before you apply is the most reliable way to raise your limit. Some debts are excluded: loans of ₩100M or less, and jeonse deposit loans for people who own no home, are left out of the calculation.
Two more ceilings sit alongside DSR, and the lowest of the three is your real limit: LTV against the property (40% for first-time-free buyers with no home in regulated zones, 60% for qualifying lower-income buyers, 70% for genuine first-time buyers), and an absolute cap by property price (₩600M for homes up to ₩1.5bn, ₩400M from ₩1.5bn to ₩2.5bn, ₩200M above ₩2.5bn). These change with every housing package, so check the current rules on the Financial Services Commission's housing measures library before you apply. To establish the income figure the bank will use, see the Korean take-home pay calculator.
Fixed or variable — it turns on 0.85pp
This is the second fork, independent of repayment method. As of 20 July 2026 the five major Korean banks quote fixed (five-year reset) at 4.79–7.52% and variable (six-month) at 4.17–6.88%. At the bottom of each range, variable is 0.62pp cheaper. Stretched over 30 years:
| Scenario (₩300M, 30 yrs, equal instalment) | Monthly | Total interest | vs fixed |
|---|---|---|---|
| Fixed 4.79% throughout | ₩1,572,183 | ₩265.99M | baseline |
| Variable 4.17% held for 30 years | ₩1,461,803 | ₩226.25M | ₩39.74M better |
| Variable, +0.5pp after 5 years | ₩1,538,685 from yr 6 | ₩249.31M | ₩16.67M better |
| Variable, +0.85pp after 5 years | about ₩1,590,000 from yr 6 | about ₩266M | break-even |
| Variable, +1.5pp after 5 years | ₩1,698,547 from yr 6 | ₩297.27M | ₩31.28M worse |
| Variable, +3.0pp after 5 years | ₩1,952,616 from yr 6 | ₩333.49M | ₩106.75M worse |
The break-even is +0.85pp. If your variable rate rises more than that within five years and stays there, fixed wins; if it rises less, variable wins. You are trading 0.62pp of savings today against that much upside risk.
The direction of travel in July 2026 does not favour the bet. The Bank of Korea raised the base rate from 2.50% to 2.75% on 16 July 2026 — its first increase in three and a half years. COFIX, the benchmark most variable mortgages track, reached 3.05% in June, back above 3% for the first time since January 2025. The rate history is published on the Bank of Korea base rate page.
If the numbers do not settle it, reduce the question to one test: could you absorb ₩300,000 more per month? In the table above, +1.5pp adds about ₩237,000 and +3.0pp adds about ₩491,000. If that would hurt, take fixed regardless of the total-interest comparison.
The first choice is also not final. If the rate cycle turns you can reprice through refinancing a Korean mortgage, and the wider question of when switching pays is covered in when refinancing a loan is worth it.
The cost the headline rate hides — prepayment fees
If a lump sum arrives and you want to pay down early, Korean banks charge a prepayment fee. Since 13 January 2025 it has been cost-based, which cut the rates sharply: fixed-rate mortgages averaged 1.43% before the reform and about 0.56% after. The formula is:
Fee = amount prepaid × fee rate × days remaining ÷ loan period — where "loan period" is not the maturity but the three years after which the fee is waived.
Say you prepay ₩50M of a ₩300M loan in year two. At a 0.55% variable-mortgage fee rate with one year left in the waiver window, that is ₩50,000,000 × 0.55% × 365 ÷ 1,095 = ₩91,667. The same prepayment in year one costs ₩183,333, in year two and a half ₩45,833, and after three years it is zero.
What matters is the ratio between that fee and the interest avoided. On the same loan, prepaying ₩50M in year two and keeping the monthly payment unchanged so the term shortens saves about ₩90.69M in remaining interest. A ₩91,667 fee is not in the same conversation. That figure does assume you keep paying ₩1,488,140 a month afterwards; if you re-contract to a lower monthly payment instead, the saving shrinks a great deal. For your own numbers see the prepayment fee calculator, and for whether to prepay at all rather than invest, paying down debt versus saving.
Which one, for whom
Work down this list and stop at the first line that applies to you.
- Your borrowing limit is tight → equal instalment. Equal principal is assessed on its larger first payment, so the same income buys a smaller loan. Getting the loan matters more than the interest.
- You expect to sell or refinance within five years → equal instalment. Cumulative payments do not cross over until year 23, and leaving early means the extra you paid is simply gone. That said, equal principal leaves a smaller balance from day one, so factor in the sale proceeds too.
- You are going to maturity and can absorb ₩425,000 more per month at the start → equal principal. ₩40.79M over 30 years is what that buys.
- ₩300,000 more per month would break your budget → fixed rate. This is a separate decision from the repayment method.
- A large sum is coming within five years (a returned jeonse deposit, a maturing deposit) → start variable with equal instalment and prepay after year three when the fee is waived. The prepayment matters more than the method.
When this comparison does not hold
These figures rest on assumptions. Where the assumptions break, so does the comparison.
- Grace periods — if the loan is interest-only for the first few years, the gap between the two methods narrows sharply and total interest rises. The calculator does not model grace periods.
- Variable rates — the calculator holds the rate flat to maturity. On a variable loan, use it only to compare scenarios.
- Step-up and step-down schedules — offered on some policy loans such as Bogeumjari, and structured differently from both methods here.
- Ancillary costs — stamp duty, mortgage registration, guarantee fees and fire insurance are excluded. On a ₩300M loan these add up to several hundred thousand won.
- Tax relief — the long-term mortgage interest deduction reduces the real cost for those who qualify. Limits vary by contract, so it is not modelled.
- Payment dates — banks calculate the first instalment on the actual days between drawdown and the first payment date, so month one may differ from the table.
Sources and where to verify
- Financial Supervisory Service, FINE — loan repayment methods (definitions of equal instalment, equal principal and bullet repayment)
- Financial Supervisory Service, FINE — loan interest calculator (five methods including grace periods; truncates below the won)
- Korea Housing Finance Corporation — monthly repayment lookup
- Bank of Korea — base rate history (raised to 2.75% on 16 July 2026)
- Financial Services Commission — housing market measures library (LTV, price-band caps, stress DSR settings)
Other fixed costs are grouped by situation in the calculator hub.
Rates and regulatory limits are the fastest-ageing part of this article. The rates used are the Bank of Korea weighted average for May 2026 and the five major banks' posted rates on 20 July 2026; the regulatory figures are as of July 2026. The method comparison itself — ₩40.79M apart, crossing over at year 11 — holds its shape as rates move, but limits and stress settings change with each policy package, so confirm them with your bank immediately before you sign. Written as of July 2026.
