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 charges and repayment of principal. The amortization schedule shows how each payment is split between principal and interest.

2. How Extra Payments Affect Your Loan

Making extra payments directly reduces your principal balance, which:

• Reduces total interest paid over the life of the loan
• Shortens the loan term
• Builds equity faster

Example: On a $200,000 loan at 4% for 30 years, an extra $100/month saves $28,000 in interest and pays off the loan 5 years early.

3. Understanding the Results

Key Metrics:

• Regular Monthly Payment: Minimum payment required without extra payments
• Total With Extra Payments: Principal + interest with your extra payments
• Total Interest Paid: How much interest you'll pay with your strategy
• Time to Payoff: How quickly you'll pay off the loan with extra payments
• Interest Saved: Difference in interest between regular and accelerated payoff

4. Using the Calculator

Tips:

• Enter the original loan amount (principal)
• Input the annual interest rate (APR)
• Specify the original loan term in years
• Add any additional monthly payment you plan to make

5. Frequently Asked Questions (FAQ)

Q1: Should I make extra payments or invest?
A: Compare your loan interest rate to expected investment returns. Paying off high-interest debt usually makes sense first.

Q2: Is it better to make biweekly payments or one extra payment per year?
A: Biweekly payments (26 half-payments = 13 full payments/year) are equivalent to one extra monthly payment annually.

Q3: Do extra payments automatically go toward principal?
A: You may need to specify they should be applied to principal. Check with your lender.

Q4: Are there prepayment penalties?
A: Most modern loans don't have them, but check your loan documents to be sure.

Q5: How much can I save with extra payments?
A: Even small extra payments can save thousands and shorten your loan term significantly.