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 and principal, with the interest portion decreasing over time as the principal balance reduces.

2. How Does Overpayment Work?

The calculator uses the standard amortization formula:

Where:

• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in months)

Overpayment Impact: Additional payments reduce the principal faster, leading to less interest paid over the life of the loan and potentially shortening the loan term.

3. Benefits of Overpayment

Details: Even small regular overpayments can significantly reduce total interest and shorten your loan term. For example, overpaying £50/month on a £200,000 mortgage could save thousands and cut years off your term.

4. Using the Calculator

Tips: Enter your loan amount, interest rate, and term. Add any planned monthly overpayment to see how it affects your loan. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Should I overpay my mortgage or invest?
A: This depends on your mortgage rate vs. potential investment returns. Overpaying gives a guaranteed return equal to your interest rate.

Q2: Are there penalties for overpayment?
A: Some loans have overpayment limits (typically 10% of balance per year). Check your loan terms before overpaying.

Q3: Is it better to overpay monthly or annually?
A: Monthly overpayments save more interest as the principal reduces continuously, but annual lump sums may be easier to budget.

Q4: How much can I save with overpayments?
A: Savings depend on loan size, rate, and term. Our calculator shows exact savings for your scenario.

Q5: Should I reduce term or payment amount when overpaying?
A: Reducing term saves more interest, but reducing payments improves cash flow. Choose based on your financial priorities.