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 installment 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)
• \( n \) — Number of monthly 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 and comparing loan offers. It also shows the total cost of borrowing (principal + interest) 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., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this work for adjustable-rate mortgages?
A: No, this calculator is for fixed-rate loans only. ARMs have payments that change when interest rates adjust.

Q2: Why is my total payment much higher than the principal?
A: This represents the total cost of borrowing, including all interest paid over the life of the loan.

Q3: How can I reduce my total interest paid?
A: You can pay less total interest by choosing a shorter loan term or making additional principal payments.

Q4: Are property taxes and insurance included?
A: No, this calculates principal and interest only. A complete mortgage payment often includes escrow for taxes and insurance.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans, matching what lenders use for amortization schedules.