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 standard formula is used for mortgages, car loans, 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 ÷ 100)
• \( n \) — Number of monthly payments (years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula accounts for both principal repayment and interest charges, with payments structured so the loan is paid off exactly at term end.

3. Importance of Loan Payment Calculation

Details: Accurate payment calculation helps borrowers understand affordability, compare loan offers, and budget for housing expenses.

4. Using the Calculator

Tips: Enter principal in USD, annual interest rate in percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. Actual mortgage payments often include escrow for taxes/insurance.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. A 30-year loan will have lower payments than a 15-year loan for the same amount.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the borrowing cost. Always compare APRs when shopping for loans.

Q4: Can I pay extra to reduce the term?
A: Yes, additional principal payments reduce total interest and can shorten the loan term. Check for prepayment penalties first.

Q5: How much should my mortgage payment be?
A: Most lenders recommend housing costs not exceed 28% of gross monthly income, though personal budgets may vary.