1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. The formula accounts for both principal and interest payments.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Extra Payments: Additional payments reduce the principal faster, saving interest and shortening the loan term.

3. Benefits of Extra Payments

Details: Even small extra payments can significantly reduce total interest and loan term. For example, an extra $100/month on a $200,000 mortgage at 4% can save thousands in interest and pay off the loan years early.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Add any planned extra monthly payment to see its impact on total interest and loan duration.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect amortization?
A: Extra payments apply directly to principal, reducing future interest calculations and accelerating payoff.

Q2: Should I pay extra principal or refinance?
A: Compare savings from extra payments versus refinancing costs. Extra payments offer guaranteed returns equal to your loan rate.

Q3: Are there prepayment penalties?
A: Most modern loans don't have prepayment penalties, but check your loan terms.

Q4: When is the best time to make extra payments?
A: Earlier payments save more interest since loans front-load interest payments.

Q5: How does this compare to biweekly payments?
A: Biweekly payments (half-payment every 2 weeks) result in one extra monthly payment per year, similar to making extra payments.