Reducing balance (non-table) loans
Repay more of your mortgage in the early stages and pay less interest over all than under a standard table loan.
With a reducing balance (non-table) home loan your regular repayments of principal and interest are initially higher than other types of loans, but while your principal repayments remain constant your interest payments will steadily decrease. This type of loan is not used often for housing as the initial costs are higher than a table loan for example.
Here’s how it works
With a reducing balance (non-table) home loan, you repay the same amount of principal each period and pay the interest as a separate payment. As the amount you owe gets less, so does the amount of interest you pay each time.
For and against
For:
Over the life of your loan you’ll pay less interest than you would with a table loan. A reducing balance (non-table) home loan can be a good idea if your income is expected to decrease; for example, if you or your partner plan to stop working in a few years time.
Against:
Higher initial repayments on a reducing balance (non-table) home loan make this type of loan more expensive in the short / medium term. It may be more affordable for you to make regular payments of the same amount under a table loan.
