The formula
A fixed-payment (amortizing) mortgage uses Payment = P × r ÷ (1 − (1 + r)^−n), where P is the loan amount, r the monthly rate and n the number of months. Every payment is the same, but early payments are mostly interest. With equal principal, you repay P ÷ n of principal each month plus interest on the remaining balance, so payments start high and fall over time; total interest is lower. Extra payments go straight to principal, so on a fixed-payment loan the monthly amount stays the same while the payoff date moves closer.
How to use it well
Extra payments made early are worth the most, because interest is charged on the outstanding balance. The same extra amount paid in year one saves far more than in year ten. Use the "prepayment in month" field to compare paying a bonus now versus later. If you are considering refinancing, run both loans here and compare total interest — but remember to add closing costs to the new loan. For adjustable-rate loans, recalculate each time the rate resets.
Things to watch
Some lenders charge prepayment penalties, and many require you to mark extra payments as "principal only". This calculator does not include taxes, insurance, PMI or HOA fees that are often bundled into a monthly housing payment, and real schedules can differ slightly because of day-count conventions and payment dates. Use your lender's amortization statement for exact figures.
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