1. What is the PMT Formula?

The PMT (Payment) formula calculates the fixed periodic payment required to pay off a loan over a specified period, including both principal and interest components.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

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

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

3. Importance of Amortization

Details: An amortization table shows how each payment is split between principal and interest, how the loan balance decreases over time, and helps borrowers understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does early payment mostly go toward interest?
A: In the early loan period, the outstanding balance is highest, so interest charges are largest. As principal is paid down, more of each payment goes toward principal.

Q2: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter loan term, or secure a lower interest rate to reduce total interest paid.

Q3: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing, while APR includes fees and other loan costs to show the true annual cost.

Q4: Are property taxes and insurance included?
A: No, this calculator shows principal and interest only. Actual mortgage payments may include escrow for taxes and insurance.

Q5: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate loans. For adjustable-rate or more complex loans, consult a financial professional.