1. What is the Loan Amortization Formula?

The loan amortization formula calculates fixed monthly payments for a mortgage, where each payment includes both principal and interest. This formula is standard in the mortgage industry and used by Bankrate and other financial institutions.

2. How Does the Calculator Work?

The calculator uses the mortgage 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

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment reduces the principal while covering the interest.

3. Importance of Mortgage Calculation

Details: Accurate mortgage calculations help borrowers understand their long-term financial commitments, compare loan offers, and budget effectively for home ownership.

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: What's included in the monthly payment?
A: This calculation shows principal and interest only. Actual payments may include property taxes, insurance, and PMI if applicable.

Q2: How does interest rate affect payments?
A: Higher rates increase monthly payments significantly. A 1% rate increase on a $300,000 loan adds about $175 to monthly payments.

Q3: What's the difference between 15-year and 30-year mortgages?
A: 15-year loans have higher monthly payments but much less total interest. 30-year loans have lower payments but cost more overall.

Q4: Can I calculate payments for other loan types?
A: This formula works for any fixed-rate amortizing loan (mortgages, auto loans, personal loans).

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. For ARMs or loans with fees, consult a lender.