1. What is the EMI Formula?

The EMI (Equated Monthly Installment) formula calculates your fixed monthly payment for a home loan. It considers the principal amount, interest rate, and loan term.

Where:

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

2. How Does Extra Payment Work?

Explanation: Extra payments are applied directly to the principal, reducing the outstanding balance faster. This decreases the total interest paid and can significantly shorten the loan term.

3. Benefits of Extra Payments

Details: Even small extra payments can save thousands in interest and reduce the loan term by years. The earlier you make extra payments, the greater the impact.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Add any planned extra monthly payment to see how it affects your loan. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Savings depend on the loan size, interest rate, and amount of extra payment. Even $100 extra per month can save thousands over the loan term.

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

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

Q4: When is the best time to make extra payments?
A: Early in the loan term when interest costs are highest. The sooner you reduce principal, the more you save.

Q5: How do I specify extra payments go to principal?
A: With most lenders, you must explicitly designate the payment as "principal only" in the payment instructions.