Which loan type is cheapest? I have a 4% loan that spans 20 years, where I pay a fixed amount every three months. If I make an extra payment, I then can choose between two options * keep the duration of the loan constant, and I pay less every 3 months or * the duration of the loan is shortened and I pay the same amount every 3 months that I always have. **Question** How do I calculate which option that is the over all cheapest?

The second option will be cheaper in terms of interest paid, as you have money borrowed for less time. You can check this by making a spreadsheet and doing the amortization table. Each three months, you add 1% interest then deduct the payment. Excel (and I believe other spreadsheets) has a PMT function that will find the new payment on the loan so it comes out even.