Calculate the impact of extra payments on your loan
Calculation Methodology
Monthly Payment Formula
The standard amortization formula is used to calculate monthly payments:
M = P × [r(1+r)^n] / [(1+r)^n - 1]• M = Monthly payment • P = Principal loan amount • r = Monthly interest rate (annual rate / 12) • n = Total number of payments
Interest Calculation
For each payment period:
• Interest = Remaining Balance × Monthly Interest Rate
• Principal = Payment - Interest
• New Balance = Old Balance - PrincipalPrepayment Impact
Additional payments directly reduce the principal balance, which decreases the amount of interest charged in subsequent periods. This creates a compounding effect that accelerates loan payoff and reduces total interest paid over the life of the loan.
Lump Sum Payment
One-time lump sum payments are applied entirely to the principal at the specified month, immediately reducing the remaining balance and all future interest calculations.
References:
- Standard Amortization Formula (Financial Mathematics)
- Consumer Financial Protection Bureau (CFPB) – Loan Calculations
- Federal Reserve – Mortgage and Loan Guidelines
Disclaimer: This calculator provides estimates based on the inputs provided. Actual loan terms may vary based on lender policies, fees, and other factors. Always consult with your lender for exact figures and terms.