Loan & Mortgage Payment Calculator

How Loan Amortization Works

When you take out a mortgage or loan, your monthly payment is split between principal (repaying the borrowed amount) and interest (the cost of borrowing). Early in the loan, most of your payment goes toward interest. Over time, the balance shifts so that more goes to principal.

The Monthly Payment Formula

Your fixed monthly payment is calculated using: M = P × [r(1+r)^n] / [(1+r)^n - 1], where P is the loan principal, r is the monthly interest rate, and n is the total number of payments. This formula ensures you pay off the loan exactly at the end of the term.

How Extra Payments Save You Money

Making extra payments directly reduces your principal balance. Since interest is calculated on the remaining balance, every extra dollar you pay today reduces the total interest you owe over the life of the loan. Even modest extra payments can have a dramatic impact:

• An extra $100/month on a $250,000 mortgage at 6.5% saves over $55,000 in interest and pays off the loan 5 years early.
• An extra $200/month on the same loan saves over $89,000 in interest and pays off the loan nearly 9 years early.

Tips for Managing Your Loan

1. Biweekly payments: Instead of 12 monthly payments, make 26 biweekly half-payments. This effectively adds one extra full payment per year.
2. Round up your payment: If your payment is $1,847, round up to $1,900 or $2,000. The difference goes straight to principal.
3. Apply windfalls: Use tax refunds, bonuses, or other windfalls to make lump-sum principal payments for maximum impact.
4. Refinance strategically: If rates drop 1% or more below your current rate, refinancing can save thousands, but factor in closing costs.