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For additional information about or to do calculations involving mortgages or auto loans, please visit the Mortgage Calculator or Auto Loan Calculator. Car buyers should experiment with the variables to see which term is best accommodated by their budget and situation. Even though many car buyers will be tempted to take the longest option that results in the lowest monthly payment, the shortest term typically results in the lowest total paid for the car (interest + principal). It can also be used when deciding between financing options for a car, which can range from 12 months to 96 months periods. The Payment Calculator can help sort out the fine details of such considerations.
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Two of the most common deciding factors are the term and monthly payment amount, which are separated by tabs in the calculator above. The number of available options can be overwhelming. Loans can be customized based on various factors. However, if it fits within your budget, paying extra toward your principal can be a great way to lessen the time it takes to repay your loans and the amount of interest you’ll pay.Related Loan Calculator | Auto Loan CalculatorĪ loan is a contract between a borrower and a lender in which the borrower receives an amount of money (principal) that they are obligated to pay back in the future. Making your normal monthly payments will pay down, or amortize, your loan. Paying a little extra towards your mortgage can go a long way Using the same example as above, if you make a payment of $477.50 every 2 weeks, instead of 1 monthly payment of $955, you could shorten your total loan term by more than 4 years and reduce the interest paid by more than $22,000. Be sure to first check with your lender if this is an option for your loan. This extra payment may be applied directly to your principal balance. When you split your payments like this, you’re making the equivalent of 1 extra monthly payment a year (26 bi-weekly payments totals 13 monthly payments). If you pay $200 extra a month towards principal, you can cut your loan term by more than 8 years and reduce the interest paid by more than $44,000.Īnother way to pay down your mortgage in less time is to make half-monthly payments every 2 weeks, instead of 1 full monthly payment. If you pay $100 extra each month towards principal, you can cut your loan term by more than 4.5 years and reduce the interest paid by more than $26,500. If you make your regular payments, your monthly mortgage principal and interest payment will be $955 for the life of the loan, for a total of $343,739 (of which $143,739 is interest). Let’s say you have a 30-year fixed-rate mortgage for $200,000, with an interest rate of 4%.
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Here are a few example scenarios with some estimated results for additional payments. Even small additional principal payments can help. Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you’ll pay. When you make an extra payment or a payment that's larger than the required payment, you can designate that the extra funds be applied to principal. This reduction of debt over time is amortization. Assuming regular payments, more of each following payment pays down your principal. Typically, the majority of each payment at the beginning of the loan term pays for interest and a smaller amount pays down the principal balance. For example, if you make a monthly mortgage payment, a portion of that payment covers interest and a portion pays down your principal. Mortgage amortization is the reduction of debt by regular payments of principal and interest over a period of time. Do you have a 15- or 30-year fixed-rate loan that you’d like to pay down faster? You might find that making extra payments on your mortgage can help you repay your loan more quickly, and with less interest than making payments according to loan's original payment terms.