How to Calculate a Loan with a Series of Extra Payments
Tutorial 10
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.
This example applies to our online Ultimate Financial Calculator. The CValue! program for Windows works in a similar way and has a few more features including the ability to save your work.
All users should work through the first tutorial to understand basic concepts about the calculator.
To create a loan schedule with a series of extra payments, follow these steps.
 Set "Schedule Type" to "Loan"
 Or click the [Clear] button to clear any previous entries.
 The top two rows of the grid will not be empty
 Delete the 2nd row by selecting it and clicking on the [Delete] button
 Set "Rounding" to "Open balance — no adjustment" by clicking on the {Settings} {Rounding Options}
 In the header section, make the following settings:
 For "Calculate Method" select "Normal".
 Set "Initial Compounding" to "Monthly".
 Enter 6.5 for the "Initial Interest Rate".
 In row one of the cash flow input area, create a "Loan" series
 Set the "Date" to May 1, 2016
 Set the "Amount" to 255,600.00
 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
 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.
 Set the "Date" to June 1, 2016
 Set the "Amount" to "Unknown" by typing "U"
 Set the "# Periods" to "360"
 Set the "Frequency" to "Monthly"
 Calculate the unknown. The result is $1,615.57

 To see the total interest before the "extra payments", click on the [Schedule] button
 Adjust periodic payment to include extra payment amount
 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.
 Click on the [Expand] button on the button bar

 Scroll the cash flow area to row thirtynine. Change the payment amount (this is the 38th payment, 07/01/2019) from $1,615.57 to $1,815.57

 Click [Collapse] button. This will result in 4 rows.
 Click on row 4, the row after the already adjusted payment and change the payment to 1,815.57 to adjust all remaining payments
 Change the "# Periods" to "Unknown"
 Here we are preparing to calculate the new term taking into account the extra payment amount

 Click [Calculate] button. The unknown is 244
 The new term is 282 payments (37 + 1 + 244)
 To see the impact of "extra payments" on the interest, click on the [Schedule] button
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.