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. This is the standard calculation used by Canadian banks for mortgages and loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and ensures you can comfortably afford the loan. It's essential for comparing different loan offers from Canadian banks.

4. Using the Calculator

Tips: Enter the principal amount in CAD, annual interest rate (e.g., 4.79 for 4.79%), and loan term in years. The calculator will compute your monthly payment.

5. Frequently Asked Questions (FAQ)

Q1: What interest rates do Canadian banks use?
A: Rates vary by bank and loan type. As of 2023, typical mortgage rates range from 4.5% to 6.5% for fixed-rate mortgages.

Q2: How does amortization affect payments?
A: Longer amortization periods reduce monthly payments but increase total interest paid over the life of the loan.

Q3: Are there other costs besides principal and interest?
A: Yes, mortgages often include property taxes and insurance in the monthly payment. Check with your lender for a complete breakdown.

Q4: How accurate is this calculator?
A: It provides accurate estimates for standard fixed-rate loans. Variable-rate loans or those with special terms may differ.

Q5: Can I use this for car loans or personal loans?
A: Yes, the formula works for any fixed-rate installment loan, though terms and rates will vary by loan type.