1. What is an Amortizing Loan?

An amortizing loan is a type of loan with scheduled periodic payments that consist of both principal and interest. Each payment reduces the principal balance until the loan is paid off at the end of the term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months in loan term

With Extra Payments: The total monthly payment is calculated by adding any additional principal payment to the standard payment.

3. Importance of Extra Payments

Details: Making extra payments reduces the principal faster, which decreases the total interest paid over the life of the loan and can significantly shorten the loan term.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in years, and any additional monthly payment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can extra payments save me?
A: Even small extra payments can save thousands in interest. For example, $50 extra on a $200,000 mortgage at 4% can save ~$20,000 and cut 3 years off a 30-year loan.

Q2: Should I pay extra or invest?
A: This depends on your loan rate vs. expected investment returns. Paying extra is a guaranteed return equal to your loan's interest rate.

Q3: Are there prepayment penalties?
A: Most loans don't have them, but check your loan agreement. Some mortgages have penalties if you pay off too much too soon.

Q4: How are extra payments applied?
A: Typically applied directly to principal, but confirm with your lender. Some may require specifying "for principal only."

Q5: Can I stop extra payments later?
A: Yes, extra payments are voluntary. You can always revert to the minimum required payment.