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 steps you through the task of calculating the impact a series of extra payments has on total interest paid and by extension, the term of the loan. Unlike the prior tutorial that handles the extra payment as a discrete event, this tutorial shows how to adjust the regular payments to include the extra payment amount. The goal is to provide our users with financial calculators which are able to handle any scenario they may need.

All users should work through the more detailed first 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"
    • Or click the [New] button to clear any previous entries.
  2. Set "Rounding" to "Open balance — no adjustment" by clicking on the {Settings} {Rounding Options}
  3. In the header section, make the following settings:
    1. For "Calculate Method" select "Normal".
    2. Set "Initial Compounding" to "Monthly".
    3. Enter 6.5 for the "Initial Interest Rate".
  1. In row one 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 the "# Periods" to 1
      • Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, it will be cleared when you leave the row
  1. Move to the second row of the cash flow input area. Select "Payment" for the "Series". For this example, we will assume we want to create a schedule for a typical mortgage payable over 30 years. Initially, the normal periodic payment amount is unknown.
    1. Set the "Date" to June 1, 2024
    2. Set the "Amount" to "Unknown" by typing "U"
    3. Set the "# Periods" to "360"
    4. Set the "Frequency" to "Monthly"
Preparing to calculate the periodic payment
Fig. 1 - Preparing to calculate the periodic payment
  1. Calculate the unknown. The result is $1,615.57
Calculated normal payment
Fig. 2 - Calculated periodic payment due
    1. To see the total interest before the "extra payments", click on the [Schedule] button
Interest after extra payments
Fig. 3 - $326,000.91 total projected interest before extra payments.
  1. Adjust periodic payment to include extra payment amount
    1. Click on the [Expand] button on the button bar
      • You should now have a total of 361 rows made up of one loan row and 360 payment rows
      • We've decided that we want to make payments that are $200.00 more than the regularly scheduled payment amount
      • The concept here is to find the first payment to be adjusted and adjust it. Collapse the payments to adjust the remaining payments.
Preparing to insert extra payments
Fig. 4 - Expanded payments - preparing to adjust the periodic payment
Adjust first payment
Fig. 5 - Adjust first payment that includes extra payment amount.
    1. Scroll the cash flow area to row thirty-nine. Change the payment amount (this is the 38th payment, 07/01/2027) from $1,615.57 to $1,815.57
Adjusted all payments
Fig. 6 - Adjust all remaining payments to include extra payment amount.
    1. Click [Collapse] button. This will result in 4 rows.
    2. Click on row 4, the row after the already adjusted payment and change the payment to 1,815.57 to adjust all remaining payments
    3. Change the "# Periods" to "Unknown"
      • Here we are preparing to calculate the new term taking into account the extra payment amount
New term after extra payments
Fig. 7 - New term after extra payments.
    1. Click [Calculate] button. The unknown is 244
    2. The new term is 282 payments (37 + 1 + 244)
  1. To see the impact of "extra payments" on the interest, click on the [Schedule] button
Interest after extra payments
Fig. 8 - $249,762.48 interest after extra payments - saving $76,238.43.
($326,000.91 - $249,762.48)

Making extra payments to prepay principal can save significant amount in interest charges. Due to the time value of money, the earlier the extra payments start the greater the savings. This calculator and the Extra Payment Calculator will show you exactly how much interest reduction can be expected.