Extra Principal Payments Loan

Few people know that if they added some additional small payments to their mortgage principle, they would save thousands of dollars over the life of the loan.
Even making an extra annual payment could shave off many months off the loan term.

With this "eye opener" calculation you can figure out the effect results of making additional payments on both the loan term and the total finance charge.

Extra principal payments can be at the same frequency of the regular loan payments ( for instance to see the effect of a slight rounding) or at a lower frequency (for instance to see the impact of an annual "bonus" payment).

To see the amortization schedule, select the Show Details command in the Calculation menu.

To toggle between date and year/period view, click the first column header in the Details.

To change the start date, select the Start Date command in the Edit menu to open the Date Options dialog.

Input

• nominal annual rate

• compounding frequency

• payment frequency

• original loan term in years or payments

• loan amount

• periodic extra principal payment

Results

• periodic payment

• required number of payments

• total paid

• total interest

Examples

•

A debt of $10,000 with interest at 6 % compounded monthly is to be amortized by monthly payments, the first payment due in one month.

What will be the monthly payment and total interest charge for this loan?

Input	Nominal annual rate:	6 %
	Interest is compounded:	monthly
	Payments are made:	monthly
	Number of years:	10
	Loan amount:	10,000
	Monthly extra principal payment:	0

Result	Periodic payment:	111.02
	Total interest:	3,322.46

Answer: for a monthly payment of $111.02 the total interest charge is $3,322.46.

•

Using the same data, what would be the total interest charge if the monthly payment is rounded to $115?
What effect does this have on the loan term?

Input	Nominal annual rate:	6 %
	Interest is compounded:	monthly
	Payments are made:	monthly
	Number of years:	10
	Loan amount:	10,000
	Monthly extra principal payment:	3.98

Result	Total interest:	3,155,36

Answer:
The total finance charge is $3,155,36 or $167.10 less.
The loan term is reduced by 5 months.

•

Using the same data, what would be the total interest charge with a $500 extra annual payment?
What effect does this have on the loan term?

Input	Nominal annual rate:	6 %
	Interest is compounded:	monthly
	Payments are made:	monthly
	Number of years:	10
	Loan amount:	10,000
	Annual extra principal payment:	500

Result	Total interest:	2,256,63

Answer:
The total finance charge is $2,256,63 or $1,065.83 less!.
The loan term is reduced by 36 months or three full years.

Related topics

Prepaid Interest Loan