The monthly payment formula
A fixed-rate loan is amortized: you pay the same amount every month, but the split between interest and principal shifts over time. The fixed payment is:
M = P × r / (1 − (1 + r)−n)
- M — the monthly payment
- P — the loan principal (current balance)
- r — the monthly interest rate (annual rate ÷ 12 ÷ 100)
- n — the number of monthly payments remaining
Why extra payments save so much
Each month, interest is charged only on the remaining balance. When you pay extra, that money goes straight to principal, shrinking the balance that all future interest is calculated on. Every early dollar of principal removes the entire stream of future interest it would otherwise have generated — which is why even $50 or $100 a month can erase years of payments.
What the calculator simulates
Rather than approximating, we run a full month-by-month amortization schedule twice:
- A baseline schedule with only the required payment.
- An accelerated schedule that applies your extra monthly amount, any one-time lump sum, and biweekly acceleration if selected.
We then compare total interest and payoff length between the two. Biweekly-accelerated plans are modeled as paying the equivalent of one extra full payment per year, spread evenly.
A quick example
On a $320,000 balance at 6.5% over 30 years, adding just $250 a month typically saves well over $100,000 in interest and retires the loan years early. Try your own numbers on the calculator to see your personal result.