1. What is the Mortgage Payment Formula?

The mortgage payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It accounts for both principal and interest payments.

2. How Does the Calculator Work?

The calculator uses the standard mortgage payment formula:

Where:

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

Explanation: The formula calculates the fixed payment that pays off the loan exactly over the term, with each payment covering both interest and principal.

3. Importance of Amortization

Details: An amortization schedule shows how each payment is split between principal and interest, and how the loan balance decreases over time. Early payments are mostly interest, while later payments are mostly principal.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate in percent, and loan term in years. The calculator will show your monthly payment, total interest, and an amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does a higher interest rate affect my payment?
A: Higher rates increase both your monthly payment and total interest paid over the life of the loan.

Q2: What's the benefit of a shorter loan term?
A: Shorter terms have higher monthly payments but much less total interest paid and faster equity buildup.

Q3: How much can I save by making extra payments?
A: Extra payments directly reduce principal, saving interest and potentially shortening the loan term.

Q4: What's the difference between interest rate and APR?
A: APR includes both interest rate and certain fees, giving a more complete picture of loan cost.

Q5: How often are payments compounded?
A: Mortgage interest is typically compounded monthly, meaning interest is calculated on the outstanding balance each month.