1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. This calculation is essential for home equity loans, mortgages, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for both principal repayment and interest charges over the loan term, with interest being front-loaded in the payment schedule.

3. Importance of Payment Schedule

Details: The payment schedule shows how each payment is split between principal and interest, helping borrowers understand how much equity they're building with each payment and the true cost of borrowing.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate in percentage, and loan term in years. The calculator will show the monthly payment and a detailed amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: Loans are structured so interest is calculated on the outstanding balance. Early payments have more interest because the balance is higher.

Q2: How can I pay less interest overall?
A: Making extra principal payments reduces the loan balance faster, resulting in less total interest paid.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, giving a more complete picture of borrowing costs.

Q4: Can I change my payment schedule after starting?
A: Some loans allow recasting (adjusting payments after a large principal payment) or refinancing to new terms.

Q5: How does loan term affect payments?
A: Longer terms mean lower monthly payments but more total interest paid. Shorter terms have higher payments but less total interest.