There are several repayment terms types out there. Let us look through them with the use of this example: Daniel borrows $100,000 and the tenure is a year while the interest is 20% p.a. for simplicity. His total P (principal) and I (interest) would be $100,000 + $20,000 = S120,000
|
P+I servicing
- He pays $10,000 monthly for 12 months ($120,000/12 month)
|
Interest servicing
- He pays $1,666.66 monthly for 12 months ($20,000/12 months)
- Then, pay off the $100,000 principal in one lump sum
|
Front end refers to the lender taking an amount upfront, typically the interest amount of $20,000 disbursing only $80,000 to him, which he then services $ 6,666.66 monthly for 12 months ($80,000/12 months). In some regions, it is also called a Discount Loan.
A Balloon repayment or a two-step mortgage can further reduce the monthly repayment installment for when the borrower has limited repayment capacity in the earlier years but is able to repay or refinance the loan after several years.
|
Balloon repayment
- For example, the same 1-year loan can have a monthly installment based on 2 years instead, meaning $888 a month
- Balance paid on the end of the 1st year lump sum.
|
Deferred repayment
- No monthly servicing at the start
-
- After period deferred, start serving
|
If it is a Deferred repayment (also known as Back End or Moratorium), the lender requires Daniel to start servicing the loan only after a couple of months or years. For example, in renovation loans after the renovation has been completed.
The last few types tend to be less common, as the principal is at risk to the lender for a longer period, and as such the interest charged could be higher, to offset the risk the lender is taking.
On your dashboard, all the various repayment terms are clearly displayed so that you can easily compare the various offers from our Financing Partners to find out which is The most suitable Loan for you.