1. What is Loan Amortization with Extra Payments?

Amortization is the process of spreading out a loan into fixed payments over time. Extra payments reduce the principal faster, saving interest and shortening the loan term.

2. How Does the Calculator Work?

The calculator uses these formulas:

Where:

• \( Interest_k \) — Interest portion of payment in period k
• \( Principal_k \) — Principal portion of payment in period k
• \( Balance_k \) — Remaining balance after period k
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Regular monthly payment
• \( extra \) — Additional principal payment

Explanation: Extra payments directly reduce principal, which then reduces future interest calculations.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest and loan term. For example, $50 extra per month on a $200,000 mortgage can save thousands in interest.

4. Using the Calculator

Tips: Enter loan amount, interest rate, term, and optional extra payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Savings depend on loan amount, rate, and extra payment size. Even small amounts make a difference over time.

Q2: Should I pay extra principal or invest?
A: Compare loan interest rate with expected investment returns. Paying debt is a guaranteed return equal to the interest rate.

Q3: Are there prepayment penalties?
A: Some loans have prepayment penalties - check your loan terms before making extra payments.

Q4: How often should I make extra payments?
A: More frequent payments (biweekly instead of monthly) can provide additional savings.

Q5: Does this work for all loan types?
A: This applies to standard amortizing loans. Some loans (like interest-only or balloon loans) work differently.