1. What is the Canadian Loan Payment Formula?

The Canadian loan payment formula calculates fixed monthly payments for amortized loans. It accounts for compound interest and provides an accurate payment amount that will pay off the loan over the specified term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Extra Payments: The calculator also accounts for additional monthly payments that reduce principal faster and save on interest.

3. Importance of Extra Payments

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

4. Using the Calculator

Tips: Enter the loan amount in CAD, annual interest rate (without % sign), loan term in years, and optional extra payment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments are applied directly to principal, reducing future interest and potentially shortening your loan term.

Q2: Are Canadian mortgage calculations different?
A: Canadian mortgages typically compound semi-annually, but this calculator uses monthly compounding for general loans.

Q3: How often should I make extra payments?
A: Regular extra payments (monthly) have the greatest impact, but even occasional lump sums can help.

Q4: Will my bank automatically apply extra to principal?
A: Most Canadian lenders do, but always confirm with your specific lender.

Q5: Are there prepayment penalties in Canada?
A: Some loans have prepayment penalties - check your loan agreement before making large extra payments.