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Amortization Formula:
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Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest charges and repayment of principal, with the interest portion decreasing over time as the principal balance reduces.
The calculator uses the standard amortization formula:
Where:
Extra Payments: Any additional payment reduces the principal balance faster, saving interest and shortening the loan term.
Details: Even small extra payments can significantly reduce total interest paid and shorten the loan term. For example, adding $100 to a $200,000 mortgage payment can save tens of thousands in interest and cut years off the loan.
Tips: Enter the principal amount in USD, annual interest rate as a percentage, loan term in years, and optional extra monthly payment. All values must be positive numbers.
Q1: How do extra payments affect my loan?
A: Extra payments reduce principal faster, saving interest and shortening the loan term. The earlier you make them, the greater the impact.
Q2: Should I pay extra principal or refinance?
A: Compare the savings from extra payments versus refinancing costs. Extra payments are flexible with no fees, while refinancing may offer lower rates but has closing costs.
Q3: How much can I save with extra payments?
A: Savings depend on loan amount, interest rate, and extra payment amount. Even $50-100 extra per month can save thousands over the loan term.
Q4: Are there prepayment penalties?
A: Most modern loans don't have prepayment penalties, but check your loan documents to be sure.
Q5: Should I pay extra or invest instead?
A: Compare your loan interest rate to expected investment returns. Paying extra is a guaranteed return equal to your interest rate.