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# Time Value of Money TutorialsTVM Calculations

## How to Calculate a Loan with a Series of Extra PaymentsTutorial 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 C-Value! 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.

1. 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
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, 2016
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, 2016
2. Set the "Amount" to "Unknown" by typing "U"
3. Set the "# Periods" to "360"
4. Set the "Frequency" to "Monthly"
1. Calculate the unknown. The result is \$1,615.57
1. To see the total interest before the "extra payments", click on the [Schedule] button
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.
1. Scroll the cash flow area to row thirty-nine. Change the payment amount (this is the 38th payment, 07/01/2019) from \$1,615.57 to \$1,815.57