How the installment is calculated
Home finance is usually charged on a reducing balance: each month, profit is charged only on the amount you still owe, and the rest of your payment reduces the balance. The rate is quoted as a yearly APR.
The term changes the total cost a lot
Financing 900,000 SAR at 5%:
| Term | Monthly installment | Total profit |
|---|---|---|
| 15 years | 7,117 | 381,086 |
| 20 years | 5,940 | 525,504 |
| 25 years | 5,261 | 678,393 |
A longer term lowers the installment but adds hundreds of thousands in profit.
Why early payments are mostly profit
In the first year of the 25-year example, you pay 63,136 SAR, of which about 44,579 is profit and only 18,557 reduces the balance. As the balance falls, more of each payment goes to the balance.
Before you sign
- Compare offers by APR and the total repaid, not only the installment.
- Ask about fees and property insurance.
- Check the terms for early settlement if you might pay it off sooner.
- Make sure the installment leaves room in your monthly budget.
Try your own numbers with the mortgage calculator, and read flat rate vs APR.