1. What is the Loan Payment Formula?

The PMT formula calculates the fixed monthly payment required to pay off a student loan over a specified term, including both principal and interest. This is the standard formula used by Freddie Mac for student loan calculations.

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, calculating a fixed payment that will pay off the loan by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing by calculating total interest paid over the life of the loan.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include Freddie Mac's fees?
A: No, this calculates only principal and interest. Freddie Mac loans may have additional fees that aren't included in this calculation.

Q2: How does interest rate affect payments?
A: Higher rates increase both monthly payments and total interest paid. A 1% rate difference can significantly impact total loan cost.

Q3: What's better - shorter or longer term?
A: Shorter terms have higher monthly payments but lower total interest. Longer terms reduce monthly payments but increase total interest paid.

Q4: Can I use this for other types of loans?
A: Yes, this formula works for any fixed-rate amortizing loan, though terms and rates may differ.

Q5: Are there prepayment penalties?
A: Freddie Mac student loans typically don't have prepayment penalties, but check your specific loan terms.