This online help page is similar to the help included in the application, but may contain more up-to-date information.

**Input values**-- Enter values for 3 of the following 4 inputs: Loan Amount, Annual Rate, Length, or Payment.**Choose payment frequency**-- Choose the appropriate frequency option.**Solve**-- Press one of the corresponding buttons to solve for the desired value.**Define Extra Payments**-- Use the Extra Payment slider to see how making extra payments may lower overall interest and reduce the time to pay off the loan.**View Yearly Summary**-- View the yearly amortization schedule by pressing on the Schedule tab.**Compare**-- Use the Copy button to copy the current loan information to Loan 2 or Loan 3, modify the other information as desired, then use the Compare button to show a side-by-side comparison.**Email**-- Press the Email button in the upper-left of either the Schedule view or the Compare view to send an email to someone with the current loan information.

**Important ** -- This calculator should only be used to provide estimations. Values returned by this calculator may not be exactly the same as quoted by your lender, mostly due to the way values are rounded.

**Disclaimer** -- Your financial situation is unique, and circumstances vary, so don't depend on this calculator to make your financing decisions. Please consult a professional. This calculator is for informational use only and does not constitute financial advice.

As you change the extra payment amount, watch how the Total Interest, Interest Savings, and Pay Off values change.

There are two main benefits of making extra payments on a loan:

- Pay off the loan earlier and get out of debt.
- Pay less interest.

Simply put, a loan must eventually be paid off in full, and the interest that is due is an expense. Some people think of making extra payments on a mortgage as "building equity" or as a special type of "savings plan". But, a mortgage is a debt. You can't access the equity in your home until you either sell it, take out a home equity loan, or establish a home equity line of credit.

The common points to consider when choosing whether to make extra payments are:

- The interest rate compared to your other debts and savings (e.g. the 18% credit card or your 5% mortgage)
- Tax implications (e.g. paying down a debt vs. putting money in a tax-deferred retirement account)
- Where you want your money (e.g. savings, equity, reduced debt)

If all you do is compare interest rates and don't consider taxes, then paying off a loan with an annural rate of 6% or putting money into a savings account at 6% results in the same amount of interest saved or earned. The difference has to do with where the money ends up and the other points listed above.

The calculator lets you choose how frequently you will make payments on your loan. It assumes that payments are applied at the end of each payment period, with no prorating for early payments. Changing the frequency of payments has a fairly small effect on the interest you pay overall, with two exceptions: the Accelerated Bi-Weekly and Accelerated Weekly options.

**Accelerated Payments**: The "Acc Bi-Weekly" and "Acc Weekly" options represent a special type of mortgage payment method that is designed to help you pay off a **mortgage** earlier and therefore pay less interest overall. These types of loans are common in Canada, and are often set up as direct deposits for people receiving a bi-weekly or weekly paycheck, as a sort of forced savings plan.

Accelerated payments are simply a predefined way of making an extra payment each pay period. For "Accelerated Bi-Weekly", the **Total Payment** is defined as **1/2 of a normal Monthly payment**. For accelerated weekly, the total payment is 1/4 of a normal monthly payment. The calculator handles these special cases by calculating the Payment based on a normal bi-weekly or weekly frequency, then automatically calculating the extra payment such that the total payment is defined correctly. The extra payment slider is disabled for these two options because of the way these loans are pre-defined.

**Payment Frequency vs. Compounding period** -- In this calculator, the number of compound periods per year cannot be greater than the number of payments per year. For example, if you have chosen the Monthly compound setting (12 compound periods per year), you can't choose a quarterly payment frequency (4 payments per year), because doing so would automatically result in negative amortization - paying interest on interest.

For more information, see articles on Amortization Calculation, Negative Amortization and simple interest.

Solving for the Annual Interest Rate requires iteration and there can be zero or more solutions. To solve using iteration, we have to start with an **initial guess** for the rate. If you leave the rate field blank, the initial guess is set to 10%.

The most common error message that you will see when solving for the rate is "*Rate calculated to be negative. Try changing the Payment amount or enter an initial guess in the Rate field*". This error message usually occurs due to one of the following cases:

**The payment may be too small**. Try entering 0% for the rate and solve for the payment to find out what the zero-interest payment would be for your loan. If you enter a payment smaller than that and try to solve for the rate, the result would be a negative rate, which this calculator does not allow.**The interest rate may be very small**. If you enter a value very close to the zero-interest payment amount, the initial 10% guess may be too large for the calculator to converge to the correct solution. Try entering a guess of 0.05% in the rate field before solving.**The interest rate may be very high**. If you had a 30-year 100,000 loan and made regular monthly payments of 4,000, the rate would be 48%. The default guess of 10% in this case isn't high enough, so you'd need to make an initial guess of around 50-70%.

**Max Extra Payment** -- The extra payment slider bar is defined based on a range of 0 to 1440 by default. Changing the max value setting will effect the slider in all 3 loan views. Changing the max value also changes the increment, so when using the slider, the values will not be even values of 100, 200, 300, etc. You can set a specific value by tapping on the extra payment amount.

**Compounding** - This setting lets you change how the interest rate is calculated. The setting affects all 3 loans, so you can't use the Compare view to show both a US mortgage and a Canadian mortgage.

**Default**-- This setting makes the compound period the same as the chosen payment frequency for each loan.**Monthly**-- For common**U.S.**mortgages.**Semi-Annual**-- For common**Canadian**mortgages.

**Loan Amount** -- The amount that you have borrowed from a lender. It is not the sale price. For an auto loan, it often consists of the price of the auto + fees + sales tax - down payment.

**Annual Rate** -- This is the annual interest rate. This calculator assumes a fixed interest rate over the course of the loan.

**Length** -- Specifies how long until the loan is paid in full, assuming no extra payments (also called the "Term" for US mortgages or the "Amortization Period" for Canadian mortgages). Auto loans are usually 1 to 6 years (12 to 72 months). US mortgages are generally 15 or 30 years. Canadian mortgages are usually 25 years.

**Frequency** (Payment Frequency) -- Used to specify the number of payments made per year: Monthly = 12 payments per year, Semi-Monthly = 24 per year, Bi-Weekly or Fortnightly = 26 per year.

**Payment** -- This is the amount (Principal + Interest) that you must pay each payment period.

**Extra Payment** -- This is the amount that you want to pay **in addition** to the normal payment each payment period. The extra payment goes directly towards paying the principal, allowing you to pay off the loan earlier and pay less interest overall.

**Interest Savings** -- When making extra payments, this value represents how much less interest you would have to pay, compared to not making extra payments.

**Compounding** -- Annual interest rates quoted by lenders are always based on a specific compounding period. **US mortgages** rates are generally based on **monthly** compounding, while **Canadian mortgages** are usually based on **semi-annual** compounding. The compounding for other types of loans may be based on the chosen payment frequency. For example, if payments are made bi-weekly, the default compounding period would be bi-weekly as well.

If you have questions or comments, please visit CalcNexus.com for contact information.

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