1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term, accounting for compound interest.

3. Importance of Early Payoff

Details: Making extra payments or lump sum payments can significantly reduce total interest paid and shorten the loan term. Even small additional payments can have a large impact over time.

4. Using the Calculator

Tips: Enter the principal amount, interest rate, and loan term. Optionally add extra monthly payments or a one-time lump sum payment to see how they affect your amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments reduce the principal faster, which decreases total interest paid and may shorten the loan term.

Q2: Is it better to make extra payments or a lump sum?
A: Both help, but lump sums have an immediate impact while extra payments provide consistent reduction. The best approach depends on your financial situation.

Q3: How much can I save with early payoff?
A: Savings depend on loan amount, interest rate, and how much extra you pay. This calculator helps quantify potential savings.

Q4: Are there prepayment penalties?
A: Some loans have prepayment penalties. Check your loan terms before making extra payments.

Q5: Should I pay off my mortgage early or invest?
A: This depends on your interest rate, investment returns, and personal financial goals. Consult a financial advisor for personalized advice.