€1,064

monthly payment, €212,500 / 25 yr / 3.5 %

€106,648

interest over the whole term

+€24,371

if the term goes 25 → 30 years

−€13,369

interest, with equal principal instead of annuity

The term costs more than it looks

A longer term looks cheap because people judge it through the monthly payment. The payment is the only figure visible every month; the total interest appears once, at the bottom of the loan offer, and is forgotten the same day.

The gap between fifteen and thirty years is €70,076 of interest — more than the down payment on many first homes. On the other hand, the short term ties up €565 more every month, and that money is gone from everything else. The right answer depends on whether the budget survives the higher payment when rates rise or income falls.

The rate: one percentage point is €35,000

A Finnish mortgage rate is a reference rate plus the bank’s margin. The margin is agreed when the loan is taken and stays put; the reference rate moves. So the price of the loan is not what it is today but what it averages over twenty-five years.

One percentage point raises the payment by about €118 and the total interest by roughly €35,000. That is why the margin is worth negotiating and why comparing two banks is very well paid work: a 0.2 percentage-point difference in margin is about €7,000 on this loan.

Annuity or equal principal

With an annuity the monthly payment stays the same throughout: at the start most of it is interest and little is principal, at the end the other way round. With equal principal the principal repaid is the same every month and interest is charged on the remaining balance, so the payment is highest at the start and falls steadily.

In the example loan the first equal-principal payment is €1,328 and the last is €710. Interest totals €93,279, which is €13,369 less than the annuity. The reason is simple: the balance shrinks faster from the beginning, so interest is charged on a smaller sum.

• ·An annuity suits steady income, where a constant payment makes budgeting easier.
• ·Equal principal suits borrowers who can certainly carry the higher early payment and want the cheapest possible exit.
• ·A fixed instalment is a third option: the payment stays put and the term flexes with rates — when rates rise, the loan simply lasts longer.
• ·Repayment holidays are a fourth, but they do not remove interest: it accrues throughout the holiday and is paid later.

The down payment matters beyond the loan cap

A larger down payment shrinks the loan and therefore the interest. Raising it from fifteen to twenty per cent — from €37,500 to €50,000 — cuts the payment to €1,001 and the interest to €100,374. The saving is €6,273, so the extra €12,500 paid half of itself back in interest.

On top of that, a bigger own-funds share usually improves the margin, because the bank’s risk is lower. The down payment therefore affects the price of the loan twice over: smaller principal and often a lower rate.

What the calculator does not show

• ·Loan fees: the arrangement fee, the disbursement fee and any monthly servicing charge are not part of the interest rate.
• ·The costs of the purchase itself: transfer tax, a condition survey and moving come on top of the down payment.
• ·The housing company’s financing charge, which in many new-build flats is a larger monthly cost than the mortgage.
• ·Loan protection insurance, offered alongside the mortgage, whose price is invisible in the rate.
• ·Mortgage interest deduction was abolished entirely in 2023, so the interest brings no tax relief.