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, including both principal and interest components. Adding extra payments reduces the principal faster and saves on interest.

2. How Does the Calculator Work?

The calculator uses the standard mortgage formula with extra payment:

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 calculates the fixed payment needed to pay off the loan, while the extra payment directly reduces principal.

3. Importance of Extra Payments

Details: Making extra principal payments can significantly reduce total interest paid and shorten the loan term. Even small additional amounts can have a large impact over time.

4. Using the Calculator

Tips: Enter loan amount in dollars, monthly interest rate as a percentage (e.g., 0.4167 for 5% annual), loan term in months, and any extra payment amount.

5. Frequently Asked Questions (FAQ)

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

Q2: How much can extra payments save?
A: A $100 extra payment on a $200,000 loan at 4% can save ~$26,000 and shorten term by 4 years.

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

Q4: Are there prepayment penalties?
A: Most modern loans don't have them, but check your loan terms to be sure.

Q5: How do extra payments affect amortization?
A: They reduce principal faster, causing more of each subsequent payment to go toward principal rather than interest.