How amortization works
Each payment is split between interest and principal. Early in the loan, a larger share goes to interest because the balance is still high. As the balance drops, more of each payment reduces principal, which speeds up the payoff and lowers the amount of interest charged over time.
M = P × [ r(1+r)^n ] / [ (1+r)^n − 1 ]
M = monthly payment
P = principal balance
r = monthly interest rate
n = total number of payments
Why extra payments matter
Even a modest extra payment each month can cut years off the loan and reduce total interest paid, especially early in the term when principal is decreasing slowly.
Your loan balance over time
How the remaining balance falls year by year, faster with extra payments. Updates as you change the inputs.
Worked example
For a $320,000 loan at 6.5% APR over 30 years with a $200 extra monthly payment:
| Item | Amount |
|---|
| Scheduled monthly payment | ~$2,022 |
| Payoff time with extra $200/mo | ~304 months (25.3 years) |
| Total interest with extra payments | ~$329,000 |
| Interest saved vs. no extra payment | ~$77,000 |
Frequently asked questions
Does extra principal reduce my total interest?
Yes. Extra payments reduce the outstanding balance sooner, which cuts the interest charged over the life of the loan.
Why does the interest portion start so high?
Because the lender calculates interest on the full balance at the beginning of the term. The balance decreases over time, so the interest portion falls.
Is a shorter term always better?
Not always. A shorter term usually cuts total interest, but the monthly payment is higher, so it needs to fit your budget.
How can I compare two loan offers?
Use the same principal and term, then compare the APR and total interest. A slightly lower APR can save thousands over time.
Should I make a lump-sum payment?
Usually yes if the payment is affordable and there is no penalty. It can significantly reduce the payoff timeline.