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 is known as the PMT (payment) formula in financial mathematics.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

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

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting, comparing loan offers, and making informed financial decisions about home purchases.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include taxes, insurance, and other fees.

Q2: How does the loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total cost.

Q3: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal. APR includes fees and other loan costs for a more complete cost picture.

Q4: How can I pay less interest overall?
A: Make extra principal payments when possible, choose a shorter term, or secure a lower interest rate.

Q5: Why does the calculator show more interest than expected?
A: Interest is front-loaded in amortizing loans - early payments are mostly interest, with more principal paid later.