How to Calculate a Loan with a Series of Extra Payments

Borrowers can save interest costs on a loan by making small, regular extra payments that are applied to the outstanding principal balance. This financial tutorial guides you through calculating the impact that a series of extra payments has on total interest paid and, as a result, the loan’s term. Unlike the previous tutorial, which addressed a single extra payment as a one-time event, this tutorial shows how to adjust each regular payment to include an additional amount. The goal is to provide users with financial calculators that can handle any scenario.

All users should first complete the more detailed initial tutorial to understand the Ultimate Financial Calculator’s (UFC) basic concepts and settings.

To create a loan schedule with a series of extra payments, follow these steps.

1. Set Schedule Type to Loan.
   • Alternatively, click New to clear any existing entries.
2. Click Settings, then select Rounding Options. Set “Rounding” to Open balance — no adjustment.
3. In the header section, apply the following settings:
   1. Select Normal for Calculation Method.
   2. Set Initial Compounding to Monthly.
   3. Enter 6.5 for Initial Interest Rate.

4. In row 1 of the cash‑flow input area, create a “Loan” series.
   1. Set the “Date” to May 1, 2024.
   2. Set the “Amount” to 255,600.00.
   3. Set “# Periods” to 1.
      • Note: Because the number of periods is 1, you will not be able to set a frequency. If a frequency is entered, it will be cleared when you exit the row.

5. Move to the second row of the cash‑flow input area. Select “Payment” for the “Series”. In this example, you will create a schedule for a typical mortgage payable over 30 years. The regular periodic payment amount is initially unknown.
   1. Set the “Date” to June 1, 2024.
   2. Set the “Amount” to “Unknown” by typing U.
   3. Set “# Periods” to 360.
   4. Set the “Frequency” to Monthly.

6. Click Calculate. The result is $1,615.57.

• 1. To see the total interest before applying extra payments, click Schedule.

7. Adjust the periodic payment to include the extra‑payment amount.
   1. Click Expand on the button bar.
      • You should now have a total of 361 rows: one loan row and 360 payment rows.
      • For this example, we will increase each payment by $200.00 above the regularly scheduled amount.
      • The general approach is to modify the first applicable payment, then collapse the payments to apply the same change to the remaining rows.

• 2. Scroll the cash‑flow area to row thirty‑nine. Change the payment amount for the 38th payment on July 1, 2027 from $1,615.57 to $1,815.57.

• 3. Click Collapse. This will reduce the schedule to four rows.
  4. Click row 4 (the row immediately after the adjusted payment), and change the payment amount to $1,815.57 to apply the same amount to all remaining payments.
  5. Change “# Periods” to “Unknown”.
     • This prepares the calculator to determine the new loan term that includes the extra‑payment amount.

• 6. Click Calculate. The unknown value is 244.
  7. The new term consists of 282 total payments (37 + 1 + 244).

8. To view the impact of the extra payments on total interest, click Schedule.

Making extra payments to prepay principal can significantly reduce total interest charges. Because of the time value of money, the earlier extra payments are made, the greater the potential savings. This calculator and the Extra Payment Calculator allow you to calculate the exact interest reduction.

Back to the Ultimate Financial Calculator.