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 formula used for fixed-rate mortgages and other amortizing loans.

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 the time value of money, calculating equal payments that will pay off the loan plus interest over the specified term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and determining how much house you can afford. It's essential for financial planning when taking out a mortgage.

4. Using the Calculator

Tips: Enter the principal amount in USD, 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: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. A complete mortgage payment may also include taxes, insurance, and possibly PMI.

Q2: How does a larger down payment affect payments?
A: A larger down payment reduces the principal amount (P), resulting in lower monthly payments.

Q3: What's the difference between 15-year and 30-year mortgages?
A: A 15-year mortgage has higher monthly payments but much less total interest paid over the life of the loan.

Q4: How do interest rates affect payments?
A: Higher rates increase monthly payments. Even a 0.5% difference can significantly impact your payment amount.

Q5: Can I pay extra to pay off my loan faster?
A: Yes, additional principal payments reduce the loan balance faster and can shorten the loan term.