1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. An amortization schedule shows how each payment is split between principal and interest, and how the loan balance decreases over time.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Extra Payments: Additional payments reduce the principal faster, resulting in less interest paid over the life of the loan and potentially shortening the loan term.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest and shorten the loan term. For example, an extra $100/month on a $300,000 mortgage at 4% could save over $30,000 in interest and pay off the loan 5 years early.

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 do extra payments affect amortization?
A: Extra payments reduce the principal balance faster, which decreases the amount of future interest and may shorten the loan term.

Q2: Should I pay extra principal or refinance?
A: This depends on your interest rate and how long you plan to stay in the home. Use this calculator to compare options.

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

Q4: How often should I make extra payments?
A: Even one extra payment per year can make a difference. Consistency is more important than amount.

Q5: Does this work for all loan types?
A: This calculator works for standard amortizing loans (like mortgages). It doesn't apply to interest-only loans or credit cards.