What is flat rate vs reducing rate?

When considering a mortgage, it’s essential to understand the flat rate vs reducing rate interest calculations.

A flat rate of interest means that the interest is calculated based on the original loan amount (principal) throughout the entire loan term. This results in consistent interest payments, making it easier to budget, but it doesn’t account for the decreasing balance of the loan as repayments are made.

In contrast, a reducing rate of interest calculates interest based on the remaining loan balance after each payment. As you repay the loan, the outstanding balance decreases, which in turn lowers the interest charged on subsequent payments. This method often results in lower overall interest costs over the life of the loan.