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Find out how much time and money you'll save by paying ahead on an existing loan. This calculator computes the savings in interest and reduction in number of payments you get when paying ahead.
A complete amortization table is available by clicking the Show Payment Schedule button below the graph. It displays a complete breakdown of the balance, amount paid, interest, and principal per payment.
Are you interested in refinancing your loan? Check out our Loan Refinance Calculator.
- Current Loan Balance - how much you currently owe.
- Current Minimum Payment - what you have to pay per month at a bare minimum. When considering a mortgage, don't include the escrow portion in the minimum payment. For example you may have a total monthly mortgage payment of $2,400 but some portion of that, say $600, is for taxes and insurance. In that case enter $1800 above, which is the principal and interest on the loan. You'll have to remember to mentally add back in the $600 to compute the full amount you pay each month.
- Interest Rate - the interest rate the bank is charging you for this loan.
- Additional Monthly Payment - the extra amount you want to pay each month in addition to the minimum monthly payment.
Things to Consider When Paying Ahead:
- The interest you owe on a loan compounds each month, making your balance increase. The faster you pay down the loan, the smaller of an effect the compounding has against you. See our article on compounding for more details.
- When you pay ahead on a loan it is essentially a risk free investment. Normally risk free investments don't exist, but this is one exception. By paying early you immediately reduce the total compounding of the loan balance.
- Usually the rate you are borrowing at is much higher than the rate you could get in a money market account, certificate of deposit, or even a bond fund which comes with additional risk. So compared to other investments that pay less or carry more risk, paying down debt can be an attractive option.
- There is nothing wrong with paying ahead on a loan and it is a great habit to get into. Some loans (from really crappy, evil companies) do have prepayment penalties, so check into that before making extra payments.
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