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How repayments change Bitcoin-backed debt

See how a principal repayment changes this year’s interest, next year’s debt, and loan-to-value.

A repayment reduces the amount still owed

Start with $30,000 of debt and no new borrowing. A $5,000 principal repayment leaves $25,000 before interest. In Debt Projection, an illustrative 10% annual rate then adds $2,500, giving $27,500 of ending debt.

Without that repayment, the same assumptions give $33,000. The $5,500 difference consists of $5,000 of principal repaid plus $500 less modeled interest. The repayment also uses $5,000 of cash; it is not free savings.

The order matters

Debt Projection adds each year’s draw, subtracts the entered principal repayment, and then applies annual interest to the remaining balance. It does not model the exact day a payment reaches a lender. Payments that first cover fees or accrued interest may reduce principal differently in a real loan.

The effect carries into later years

With another year at 10%, no further draws, and no further repayments, $27,500 grows to $30,250. The no-repayment path grows from $33,000 to $36,300. These examples hold the rate fixed.

Lower debt changes LTV, too

With 1 BTC pledged and an assumed $100,000 price, ending debt of $27,500 means 27.5% loan-to-value (LTV), compared with 33% without the repayment. This holds the collateral and price constant. Paying debt does not automatically release collateral.

Check what a lender calls a repayment

Verify payment allocation, minimum payments, prepayment terms, and collateral-release rules in the agreement. The model floors debt at zero: an entered repayment larger than principal does not create negative debt or a cash credit.

What changes if you repay $5,000?

Start with a $30,000 loan. Assume 10% annual interest is added to the balance and you borrow no more money.

For this example, any repayment reduces the loan before the year’s interest is calculated.

If you repay nothing

Loan before interest
$30,000
10% interest added
$3,000
You owe at year-end
$33,000

The balance grows because you have not paid down the loan or paid the interest separately.

If you repay $5,000 first

Loan after repayment
$25,000
10% interest added
$2,500
You owe at year-end
$27,500

You paid down $5,000 of the original loan—the principal. Interest is then calculated on $25,000.

The repayment saves $500 interest in this example. You owe $5,500 less at year-end: the $5,000 you repaid plus that $500 interest saving.

Your actual saving depends on when you repay and your lender’s interest and payment rules. Already-accrued interest and fees may still be payable.

Open the planner →

This is a worked example. Opening the planner does not transfer these assumptions.