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 and principal, with the interest portion decreasing over time while the principal portion increases.
The calculator uses the amortization formula:
Where:
Extra Payments: Additional payments reduce the principal faster, saving interest and shortening the loan term.
Details: Even small extra payments can significantly reduce total interest and loan term. For example, $100 extra per month on a $200,000 mortgage can save tens of thousands in interest.
Tips: Enter the loan amount, interest rate, term in years, and optional extra payment. All values must be positive numbers.
Q1: How do extra payments affect my loan?
A: Extra payments directly reduce principal, saving interest and potentially shortening your loan term.
Q2: Should I pay extra principal or refinance?
A: Depends on your interest rate and goals. Extra payments provide guaranteed returns equal to your loan rate.
Q3: Are there prepayment penalties?
A: Some loans have prepayment penalties, especially in early years. Check your loan terms.
Q4: How much can I save with extra payments?
A: Savings depend on loan amount, rate, term, and extra payment amount. This calculator shows exact savings.
Q5: When is the best time to make extra payments?
A: Earlier payments save more interest since more of your payment goes toward interest in early years.