Canadian Loan Payment Formula:
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The standard Canadian loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term, including both principal and interest components.
The calculator uses the standard amortization formula:
Where:
Extra Payments: The calculator then applies your additional monthly payment to reduce the principal faster, recalculating the amortization schedule accordingly.
Details: Making extra payments directly reduces your principal balance, which decreases the total interest paid over the life of the loan and can significantly shorten your loan term.
Tips: Enter the principal amount in CAD, annual interest rate as a percentage, loan term in years, and any additional monthly payment you plan to make. All values must be positive numbers.
Q1: How do extra payments affect my loan?
A: Extra payments reduce your principal faster, saving interest and shortening your loan term. Even small extra payments can make a big difference over time.
Q2: Are there prepayment penalties in Canada?
A: Some Canadian mortgages have prepayment penalties. Check your loan agreement before making large extra payments.
Q3: Should I pay extra principal or invest?
A: This depends on your loan interest rate vs. expected investment returns. Generally, paying down high-interest debt first makes sense.
Q4: How often should I make extra payments?
A: Monthly extra payments have the greatest impact, but even annual lump sums can help reduce your principal.
Q5: Can I change my extra payment amount later?
A: Yes, most Canadian lenders allow you to adjust or stop extra payments at any time without penalty.