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The monthly payment is calculated using the standard amortization formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. This formula ensures that each payment covers the interest due for that month while gradually reducing the principal balance.

Your monthly payment must exceed the monthly interest charge. If it does not, the loan balance will never decrease. The calculator will show an error with the minimum required payment. For example, on a $100,000 loan at 7% APR, the monthly interest alone is about $583 — any payment below that will never pay off the loan.

Yes, making extra payments toward the principal reduces the total interest paid and can shorten the loan term. The amortization schedule shows the impact of each payment. Even small additional amounts — like an extra $50 per month — can save thousands in interest over the life of the loan.

An amortization schedule is a table showing each payment broken down into principal and interest portions, along with the remaining balance after each payment. In the early years, most of each payment goes toward interest; toward the end, most goes toward principal.

The interest rate is the percentage charged on the loan principal and determines the base cost of borrowing. APR (Annual Percentage Rate) includes the interest rate plus any additional fees such as origination charges, discount points, and mortgage insurance. Because of these extra costs, the APR is always equal to or higher than the interest rate. For example, a loan with a 6% interest rate and $1,000 in fees on a $200,000 mortgage might have an APR of approximately 6.25%. When comparing loan offers from different lenders, always look at the APR rather than the interest rate alone, as it gives you a more complete picture of the true cost of the loan.

A 15-year mortgage has higher monthly payments but significantly less total interest — often half or less of what you would pay on a 30-year loan. It also builds equity faster and the loan is paid off sooner. A 30-year mortgage has lower monthly payments, leaving more room in your budget for other investments like retirement savings or education funds. The key tradeoff is interest cost versus monthly cash flow. Use this loan calculator to model both options side by side with the same principal and rate. For example, a $250,000 loan at 6.5% costs $198,000 in total interest over 30 years but only $101,000 over 15 years — a savings of nearly $97,000. Choose based on whether you prioritize lower monthly payments or long-term savings.