Spitzer or Equal Principal: The Great Dilemma for Mortgage Borrowers

One of the most critical decisions in the mortgage planning process is choosing the repayment schedule. Is it better to pay a fixed monthly payment or start high and gradually decrease? Let's dive deep into the numbers and understand what's right for you.

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What is a Repayment Schedule Anyway?

When we approach the mortgage consultation process, most of our attention is directed to interest rates and tracks (prime, fixed, variable). However, the repayment schedule - the method by which the bank calculates the principal and interest repayment each month - has a dramatic impact on the total payments you'll return to the bank over the life of the loan.

In Israel, there are two main methods: the Spitzer schedule (most common) and the equal principal schedule. The difference between them lies in the ratio between interest payment and principal payment in each monthly repayment. Understanding these differences is the key to saving tens of thousands of shekels over the years, especially when it comes to first-time home buyer mortgage consultation where the budget is usually limited and carefully calculated.

Spitzer Schedule: The Familiar Standard

How does it work?

In the Spitzer schedule, the monthly repayment (before indexation) remains fixed throughout the entire life of the mortgage. At the beginning, most of the monthly payment consists of interest, with only a small portion reducing the principal. As time passes, this ratio changes: the interest component decreases and the principal component increases.

Key Advantages

Lower initial monthly repayment compared to equal principal.
Stability and certainty in monthly cash flow.
Very suitable for young couples at the beginning of their professional journey.
Allows taking a higher mortgage with the same repayment ratio.

Disadvantages

Very slow principal repayment rate in the first years.
Higher total interest payments over the life of the loan.
In case of early repayment in the first years, you might discover that the principal has barely decreased.

Equal Principal Schedule: For the Dedicated

In the equal principal schedule, as the name suggests, the amount of principal that decreases each month is fixed. Interest is calculated on the outstanding principal balance. Since the principal decreases at a fixed and rapid pace, interest payments also decrease each month. The result is a monthly repayment that starts high and steadily decreases over the years.

Who Is This Suitable For?

This method is typically suitable for borrowers with high repayment capacity, or for those upgrading their housing who are refinancing their mortgage and improving terms and can handle higher monthly repayments initially in order to save on interest costs in the long term.

The Bottom Line:

With equal principal, you'll pay less interest to the bank at the end of the period, but you'll need higher repayment capacity at the beginning. This is significant savings, but it comes with a "cash flow price" in the present.

Head-to-Head Comparison: Summary of Differences

Comparison Parameter	Spitzer Schedule	Equal Principal
Initial Monthly Repayment	Lower	Higher
Repayment Development (without index)	Fixed	Decreases over time
Principal Repayment Rate	Slow at first, accelerates at the end	Fixed and fast from day one
Total Interest Payments	Higher	Lower (monetary savings)
Risk of Index Exposure	Higher (principal decreases slowly)	Lower (principal erodes quickly)

So which should you choose?

There's no one-size-fits-all answer. The choice depends on your personal financial profile, future plans, and current repayment capacity.

If you're a young couple buying your first home and need every shekel in monthly cash flow to handle expenses like daycare, property tax, and living costs - the spitzer schedule will probably be the more realistic and safer choice, even if it costs more in the long run. The ability to "breathe" financially today is worth no less than future savings.

On the other hand, if you're upgrading your home, or your disposable income is high and you want to minimize financing costs to the absolute minimum - equal principal is an excellent option that will save you significant money and shorten your exposure to interest and index risks.

Expert tip:

You can also combine both! In building a smart mortgage mix, you can take some tracks with spitzer and some with equal principal, thus enjoying the advantages of both methods. This is exactly where professional mortgage consulting can create tremendous added value for you.

Want to build the winning mix for you?

Whether spitzer or equal principal, we're here to match you with the exact mortgage for your needs - in your pajamas and comfortably, with maximum professionalism.