Planning to Take Out a Loan? Here's Why Equal Repayment Could Be Right for You
When you take out a loan, one of the first things you'll need to decide is how to pay it back. In South Korea and many other countries, the most popular method is called Equal Principal and Interest Repayment, also known as "원리금 균등상환" in Korean. It’s simple, predictable, and ideal for people who need stability in their monthly finances. If you're new to loans, this guide will walk you through everything you need to know—without the complicated financial jargon.
What Exactly is Equal Principal and Interest Repayment?
This method means you pay the same amount every month throughout the loan period. That fixed amount includes both the principal (the actual loan amount) and the interest.
Here’s how it works:
- In the early months, a larger portion of your monthly payment goes toward interest.
- Over time, the interest portion decreases, and the principal portion increases.
- But the total monthly payment remains the same.
This structure makes it easier to plan your budget because you always know exactly how much you'll need to pay.
A Real Example: 100 Million KRW Loan, 5% Interest, 10 Years
Let’s say you borrow ₩100,000,000 at a 5% fixed interest rate over 10 years.
| Month | Interest Portion | Principal Portion | Total Monthly Payment |
|---|---|---|---|
| Month 1 | ₩416,667 | ₩645,161 | ₩1,061,828 |
| Month 60 | ~₩220,000 | ~₩840,000 | ₩1,061,828 |
| Month 120 | ~₩4,500 | ~₩1,057,000 | ₩1,061,828 |
As you can see, even though you pay the same amount every month, what you're actually paying off shifts from interest to principal over time. The balance decreases faster in the second half of the loan term.
Equal vs. Unequal Repayment: What’s the Difference?
There’s another method called Equal Principal Repayment, and it’s often compared with the equal method.
Here's a quick comparison using the same loan terms:
| Criteria | Equal Principal + Interest | Equal Principal Only |
|---|---|---|
| First Month Payment | ₩1,061,828 | ₩1,250,000 |
| Last Month Payment | ₩1,061,828 | ₩833,333 |
| Total Interest Paid | ~₩27,419,360 | ~₩22,916,670 |
| Monthly Payment Trend | Fixed | Decreases over time |
| Initial Burden | Lower | Higher |
If you’re focused on minimizing your total interest, the equal principal method wins. But if you want consistent monthly costs, equal principal and interest is far easier to manage—especially for first-time borrowers.
Why I Chose Equal Repayment for My Mortgage
When I bought my first apartment in Seoul, I chose the equal repayment method for one reason: predictability. As a salaried employee, I needed to make sure my monthly budget wasn’t swinging up and down.
Even though I knew I’d be paying slightly more in interest over the life of the loan, the peace of mind and consistency made it worth it. And honestly, after a few years, I hardly noticed the difference—except when I checked my amortization schedule and saw the principal ticking down steadily.
Pros and Cons at a Glance
| Pros | Cons |
|---|---|
| Easy to budget with fixed payments | Higher total interest than some other methods |
| Great for salaried or fixed-income earners | Slower principal reduction in early stages |
| Works well with fixed interest loans | Less flexible if your income fluctuates |
This repayment method is ideal for people with steady incomes, like most office workers or teachers. If your earnings are consistent, this approach gives you control and long-term peace of mind.
How It Works in South Korea (2025 Data)
In 2025, most major South Korean banks—including IBK, Woori, and Shinhan Bank—offer this as the default repayment method for fixed-rate home loans. Many products now support repayment terms of up to 40 years, which lowers monthly costs even further.
According to recent statistics:
- Average home loan repayment in Seoul: ₩1.2 million/month
- Most borrowers use the equal principal and interest method
- That’s about 12.7% of average monthly income—a manageable level for most
Final Thoughts: Is It Right for You?
Equal principal and interest repayment isn’t for everyone, but it’s a great starting point for most new borrowers. If you value stability, easy budgeting, and a clear repayment schedule, this method is hard to beat.
However, if you’re okay with a heavier burden in the first year and want to save on total interest, consider exploring the equal principal method instead.
Whichever you choose, understanding the structure of your loan is just as important as choosing the right apartment or house. After all, this is a financial journey that could last decades—make sure you’re starting on the right foot.
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