Short answer
An annuity payment stays constant while interest falls and principal rises. An early overpayment immediately reduces the base for every future interest charge.
Important variables
- Loan amount and rate
- Term or initial amortisation
- Extra monthly or annual payments
- Fixed-rate period and contract limits
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Worked example
At €350,000 and 3.7% over 30 years, the payment is roughly €1,611 monthly. An extra €200 reduces term and interest because each euro lowers principal.
Break-even: What changes the result?
The higher the rate and remaining term, the larger the guaranteed effect of overpayment. Contractual limits must be checked outside the model.
Common mistakes
- Equating payment and interest cost
- Forgetting balance at rate reset
- Assuming overpayment rights
- Carrying rounded balances forward
Terms in this guide
Loan-to-valueLoan relative to the property value used by the lender. It is not necessarily the loan divided by purchase price.Fixed-interest periodPeriod for which the mortgage rate stays fixed. A remaining balance may face a new rate at the end.MortgageLong-term secured loan used to finance property.Principal paymentPayment that reduces debt and builds equity rather than being economically consumed.
Sources & assumptions
- RATIOXA — Methodology and formulas (2026-08-17)
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