1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest components. This is the standard formula used for most fixed-rate mortgages and installment loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal reduction.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and determining how much house you can afford. It's essential for financial planning.

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate (without % sign), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. Your actual mortgage payment may include escrow for taxes and insurance.

Q2: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing the principal.

Q4: Can I use this for other types of loans?
A: Yes, this works for any fixed-rate installment loan (car loans, personal loans, etc.).

Q5: How can I pay less interest overall?
A: Make extra principal payments when possible, choose a shorter loan term, or secure a lower interest rate.