Loan repayment calculator

By total interest, equal-principal wins. For the same $100,000 at 5% over 30 years, equal-principal's total interest is roughly 15-20% lower than equal-payment's. But equal-principal has the highest first-month payment, so the early burden is heavier. If cash flow is tight, the constant equal-payment is safer; if you have early headroom and want to save interest, equal-principal is better. Compare both methods' first payment and total interest right here.

An interest-only stretch means the balance never shrinks — you cover interest and nothing else. It is uncommon in standard US mortgages since the post-2010 qualified-mortgage rules, but you still meet it in construction-to-permanent loans, the 10-year draw period on a HELOC, and some jumbo or portfolio products. On the $300,000 example at 4.5%, three interest-only years cost $1,125 a month, add about $12,100 to lifetime interest, and push the later payment up to roughly $1,601 because the same principal now has 27 years instead of 30 to amortize. The case for it is cash flow: it can bridge a renovation, a stretch of tuition bills, or income you expect but do not yet have. If you can afford principal from month one, starting amortization immediately is always cheaper.

Prepayment penalties are far less common in the US than abroad — most conforming, qualified mortgages carry none. When one does apply, federal rules limit it to the first three years (generally up to 2% of the prepaid balance in years 1-2 and 1% in year 3), and it's often a 'soft' penalty triggered only by a full payoff or refinance, not by extra principal payments. For example, paying off a $200,000 balance in year 1 at a 2% penalty would cost about $4,000. This calculator assumes normal repayment to maturity, so check your loan note for any prepayment penalty separately.

Both are debt-to-income ratios measured against gross monthly income. Front-end DTI counts only the housing payment — principal, interest, property tax, insurance, and any HOA dues. Back-end DTI adds every other monthly obligation: car loans, student loans, minimum credit-card payments, child support. The old rule of thumb was 28% front-end and 36% back-end, but conventional loans through Fannie Mae and Freddie Mac routinely reach 45% and go as high as 50% with strong credit or reserves, and FHA is more permissive still. The federal qualified-mortgage standard once imposed a hard 43% back-end cap; the CFPB replaced it in 2021 with a price-based test tied to the loan's APR, so DTI is now an underwriting judgment rather than a bright line. Back-end DTI is also where revolving balances quietly disqualify people — a card's minimum payment counts in full even if you intend to clear it at closing.

There is no statutory right to demand a lower rate from your lender in the US — you refinance instead, replacing the old note with a new one. The arithmetic is a break-even: divide closing costs by the monthly saving. Refinancing this $300,000 loan from 6% to 4.5% cuts the payment from about $1,799 to $1,520, a $279 saving, so $6,000 of closing costs pays back in roughly 22 months — worth doing if you will stay well past that, not if you may sell or move sooner. Watch two traps: resetting to a fresh 30-year term can raise lifetime interest even at a lower rate, and rolling closing costs into the balance hides them rather than removing them. FHA and VA borrowers have streamlined refinance programs with lighter documentation. A cheaper alternative some servicers offer is a recast — you pay a lump sum toward principal and they re-amortize the remaining balance over the original term for a small fee, lowering the payment without a new loan or a new rate.

Adjustable wins if rates fall, fixed wins if they rise — and in the US the asymmetry favors fixed, because you can refinance downward later while the lender can never push your rate up. The 30-year fixed mortgage is a distinctly American product, sustained by the agency securitization market, and it dominates the market for exactly that reason. Adjustable-rate loans are quoted as 5/1, 7/1, or 10/1: a fixed introductory stretch, then annual resets against an index — SOFR-based since LIBOR was retired — plus a fixed margin. The caps matter more than the headline rate and are written as three numbers such as 2/2/5 or 5/2/5, meaning the largest first adjustment, each later adjustment, and the lifetime increase over the starting rate. Read the lifetime cap as your worst case and confirm you could still afford it. This calculator assumes one fixed rate, so to model an adjustable loan, run the introductory rate and then run the fully-capped rate as a stress case.

Banks often prorate the first month's interest from the disbursement date to month-end, so the first payment can differ slightly here. Variable rates change the payment at each reset, and some banks fix the repayment date to a set day, changing the interest day-count. This calculator uses a fixed-rate, equal-days-per-month estimate — best for comparing total interest size and repayment methods.

Equal-payment loans front-load interest, so prepaying early has the biggest effect. For $100,000 at 5% over 30 years (equal payment), an extra $20,000 repayment in year 5 can save thousands of dollars in total interest and shorten the term by several years. But weigh any prepayment penalty (usually only within the first three years) and your emergency fund. As a rule, if the loan rate exceeds safe-asset returns, repaying wins.

A high back-end DTI restricts what you can borrow, but several levers move it. Lengthening the term lowers the monthly payment that feeds the ratio — on $300,000 at 4.5%, moving from a 20-year to a 30-year schedule drops the payment from about $1,898 to $1,520 — though it raises lifetime interest from roughly $155,500 to $247,200, so it is a real trade rather than a free win. Paying off credit cards and auto loans first removes their minimum payments from the numerator, often the fastest fix. A larger down payment shrinks the loan itself and can also drop private mortgage insurance out of the housing payment. You can add a co-borrower whose income counts, or document bonus, commission, or rental income that underwriting will accept with a two-year history. Buying discount points lowers the payment used in the ratio too. Compare the total-interest cost of each path here before committing to one.

Most loans allow prepayment (ad-hoc repayment) of principal even during grace. Grace is a period where you 'may pay interest only,' not one that forbids principal payment — so repaying whenever you have room shrinks the balance and reduces later interest. Note that prepayment penalties may still apply during grace, so check your contract's prepayment terms.