What would the total repayment be on a $50,000 loan over 5 years at a 3.5% fixed interest rate, and how does it compare to a variable rate?

For a personal loan of $50,000 over 5 years at a fixed interest rate of 3.5%, the repayment can be calculated using the loan amortisation formula for fixed-rate loans. The formula for the monthly payment (M) is:

$$
M = \frac{P \times r \times (1 + r)^n}{(1 + r)^n – 1}
$$

Where:

• M = monthly payment
• P = loan principal ($50,000)
• r = monthly interest rate (annual rate divided by 12)
• n = total number of payments (loan term in months)

Substituting the values for a fixed rate of 3.5% over 5 years:

• Loan amount: $50,000
• Annual interest rate: 3.5% = 0.035
• Monthly interest rate: 0.035 ÷ 12 = 0.00291667
• Loan term: 5 years = 60 months

The monthly payment comes out to approximately \$909.59. Over the 5 years, the total repayment would be:

• Total repayment = \$909.59 × 60 = \$54,575.23

Now, for a variable interest rate scenario, let’s assume the interest rate changes each year as follows:

• Year 1: 3.5%
• Year 2: 4.0%
• Year 3: 4.5%
• Year 4: 5.0%
• Year 5: 5.5%

The monthly payments for each year would adjust as follows:

• Year 1: \$909.59
• Year 2: \$922.01
• Year 3: \$934.18
• Year 4: \$947.94
• Year 5: \$971.01

The total repayment over the 5 years with the variable interest rate would be approximately \$56,216.79.

Comparison of fixed vs variable rate repayments:

• Fixed rate total repayment: \$54,575.23
• Variable rate total repayment: \$56,216.79

In this scenario, the variable rate would result in approximately \$1,641.56 more in total repayments, assuming the interest rate increases as specified each year.