1. What is the Mortgage Payment Formula?

The mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. Adding extra principal payments reduces both the loan term and total interest paid.

2. How Does the Calculator Work?

The calculator uses the standard mortgage formula with an extra payment component:

Where:

• \( Principal \) — Original loan amount ($)
• \( Rate \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (months)
• \( Extra \) — Additional principal payment ($)

Explanation: The formula accounts for compound interest over the loan term, while extra payments directly reduce principal.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest and shorten the loan term. For example, $100 extra monthly on a $300,000 loan at 4% can save ~$28,000 and cut 5 years off a 30-year mortgage.

4. Using the Calculator

Tips: Enter loan amount in dollars, monthly rate as percentage (e.g., 0.33 for 4% annual), term in months, and any extra payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide annual percentage rate by 12 (e.g., 6% annual = 0.5% monthly = 0.005 in decimal).

Q2: How much will extra payments save me?
A: Depends on loan size, rate, and extra amount. Even $50/month can save thousands over the loan term.

Q3: Should I pay extra or invest?
A: Compare mortgage rate to expected investment returns. Paying extra gives a guaranteed return equal to your interest rate.

Q4: Are there prepayment penalties?
A: Most US mortgages don't have them, but check your loan terms. Some loans limit extra payments.

Q5: How to pay extra most effectively?
A: Specify "for principal reduction" with payments. Biweekly payments (half payment every 2 weeks) also help by making one extra payment yearly.