Loan repayment
The bank will show you your instalment. We will also show you how much of it goes on interest, how much you will pay over the whole term and what extending the loan by five years really means. The numbers can be unpleasant - but they are true.
| No. | Instalment | Interest | Capital | Balance remaining |
|---|
Where your instalment comes from
The formula for an equal (annuity) instalment
An equal instalment is the amount which, paid n times, covers the capital plus interest charged on the shrinking balance. The bank solves this with a single equation:
P - the loan amount (capital)
i - the monthly rate = annual interest rate ÷ 12
n - number of instalments = years × 12
Let's plug in our default values: P = PLN 400,000, interest rate 7.5% (so i = 0.075 ÷ 12 = 0.00625) and n = 300 instalments (25 years).
denominator: 1 - 1.00625-300 = 1 - 0.15442 = 0.84558
instalment: 2,500.00 ÷ 0.84558 = PLN 2,955.96
Look at the numerator: PLN 2,500. That is exactly the interest on PLN 400,000 in the first month. Your first instalment is PLN 2,500.00 of interest + PLN 455.96 of capital. After paying nearly three thousand zloty, your debt goes down by less than PLN 456.
Why you pay almost nothing but interest at the start
Because interest is charged on the current balance, and the balance is at its highest at the start. The instalment is fixed, but its make-up changes from month to month: the less you owe, the less interest and the more of the same instalment goes towards the capital.
This is not a bank trick, just arithmetic. But it has two practical consequences. First: during the early years the loan barely shrinks - after 5 years of repaying a PLN 400k loan you still owe more than PLN 360k. Second: every zloty you overpay at the start has the strongest effect, because it cuts the balance on which all future interest is calculated.
Equal vs decreasing instalments
A decreasing instalment has a fixed capital part (capital ÷ number of instalments) plus interest on what is left. The first instalment is the highest, and each one after it is a little lower. Here is the same loan - PLN 400,000, 7.5%, 25 years - calculated both ways:
Decreasing instalments are always cheaper - there are no exceptions. The reason is simple: you pay down the capital faster, so there is less for interest to be charged on. The price is a higher instalment at the start.
The bank calculates your borrowing capacity from the first, highest instalment. With decreasing instalments that is PLN 3,833.33 instead of PLN 2,955.96 - 30% more. The result: on the same income you will get a smaller loan. That is why most borrowers choose equal instalments - not because they are better, but because they can't afford decreasing ones.
If decreasing instalments fit your budget - take them. If not, take equal instalments and overpay. The effect is very similar, and you keep flexibility: in a lean month you simply don't overpay.
APR - the only number worth comparing
The interest rate tells you what the borrowed capital costs. APR (in Polish: RRSO, the annual percentage rate of charge) tells you what the whole loan costs: interest, arrangement fee, insurance, account fees. And - most importantly - it takes into account when you pay those costs.
D - your repayments (instalments and fees)
t, s - timing of each cash flow, in years
X - the APR we are solving for
The equation cannot be solved with a formula - the calculator finds X numerically.
The left-hand side is the key. The arrangement fee is usually deducted at payout: you take out a PLN 400,000 loan with a 2% fee (PLN 8,000), and PLN 392,000 lands in your account. But interest is still charged on the full PLN 400,000. You are paying for money you never saw.
That is why an offer of "0% fee, 8% interest" can be cheaper than "7.5% interest, 3% fee". Don't compare interest rates. Compare APR. The bank is legally required to state it - if you have to search for it with a magnifying glass in the small print, that is already a warning sign.
Loan term: the most expensive decision you will make
Extending the loan lowers the instalment - that is true. The rest of that truth looks like this (again PLN 400,000 at 7.5%):
See the pattern? The instalment falls more and more slowly, while interest rises steadily and relentlessly. Going from 15 to 20 years saves you PLN 486 a month on the instalment. Going from 30 to 35 - only PLN 100. But every extra five years adds more than PLN 100,000 of interest.
Going from 25 to 35 years lowers the instalment by PLN 258.99 a month. Sounds like relief. But interest then rises from PLN 486,789.41 to PLN 732,727.57 - an increase of PLN 245,938.16.
For every zloty of lower instalment you pay about PLN 950 in extra interest. That is the worst exchange rate you will find in banking. Only extend the term when the alternative is not repaying the loan at all - not just to "have a bit more breathing room".
The flip side of the same coin is very pleasant, though: shortening the term (or overpaying, which works the same way) cuts interest just as dramatically as extending it pushes it up.
What this calculator doesn't know
We tell the truth even when it undermines our own result. This calculator assumes a fixed interest rate for the whole term. With a real mortgage in Poland that is almost never the case:
- A variable rate (WIBOR/WIRON + margin) changes every 3 or 6 months. Your instalment rises and falls with NBP (National Bank of Poland) rates.
- A fixed rate usually guarantees the instalment for 5 years. After that the agreement returns to a variable rate or you negotiate a new fixed period.
- Bridging insurance raises the margin by about 0.5-1 percentage points until the mortgage is entered in the land and mortgage register - so for the first months you pay more. Enter it in the "monthly fee" field.
Treat the result as a baseline scenario, not a forecast. Before you sign the agreement, check what the instalment looks like at an interest rate 2-3 percentage points higher - that is exactly how the bank tests you when it calculates your borrowing capacity with the KNF (Polish Financial Supervision Authority) buffer.
Frequently asked questions
Equal or decreasing instalments - which works out cheaper?
Decreasing, always. At PLN 400,000 at 7.5% over 25 years you will pay PLN 376,250.00 of interest instead of PLN 486,789.41 - saving PLN 110,539.41. The condition: you need to be able to handle a first instalment of PLN 3,833.33 instead of PLN 2,955.96. If you can't, take equal instalments and overpay - it comes out the same, and you keep flexibility.
Why am I paying almost nothing but interest at the start of my loan?
Because interest is calculated on the balance, and the balance is highest at the start. Your first instalment of PLN 2,955.96 contains PLN 2,500.00 of interest and only PLN 455.96 of capital. The proportion only flips around the middle of the loan term.
How is APR (RRSO) different from the interest rate?
The interest rate is the price of the capital. APR is the price of the whole loan - with the arrangement fee, insurance and charges, taking into account when you pay them. A PLN 400,000 loan at 7.5% over 25 years has an APR of 7.76% without a fee and 8.01% with a 2% fee. Same instalment, different price.
Is it worth extending the term to get a lower instalment?
Almost never. From 25 to 35 years: the instalment is PLN 258.99 lower, interest is PLN 245,938.16 higher. That is roughly PLN 950 of extra interest for every zloty of relief on the instalment. Extending only makes sense as a rescue from running out of cash - never as an optimisation.
Can the instalment change during repayment?
With a variable rate - yes, every 3 or 6 months, together with WIBOR/WIRON. With a fixed rate - no, but usually only for 5 years. This calculator assumes a fixed rate for the whole term, so treat the result as a baseline scenario and also check a version 2-3 percentage points more expensive.
Can I get the arrangement fee back if I repay early?
With a consumer loan - yes. Under the CJEU (TSUE) ruling C-383/18 ("Lexitor") the bank must refund a proportional part of the fee and other costs if you repay the loan early. You will find the details in the overpayment calculator.
You know your instalment. Now find a lower one.
A 0.5 percentage point difference in the interest rate on PLN 400,000 over 25 years is about PLN 40,000. Before you sign, make sure you are comparing the right numbers.