1. What is the Loan Payment Formula?

The PMT formula calculates the fixed monthly payment required to pay off a loan over a specified term at a given interest rate. This is the standard formula used for fixed-rate mortgages and other installment loans.

2. How Does the Calculator Work?

The calculator uses the PMT 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 accounts for both principal repayment and interest charges, with more interest paid early in the loan term and more principal paid later.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing different loan options. The calculation shows the true cost of borrowing, including interest over the loan term.

4. Using the Calculator

Tips: Enter the loan amount in dollars, 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: How does interest rate affect my payment?
A: Higher rates increase both your monthly payment and total interest paid. A 1% rate difference can significantly impact long-term costs.

Q2: Should I choose a shorter or longer loan term?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but increase total interest costs.

Q3: What's included in the monthly payment?
A: This calculates principal and interest only. Actual mortgage payments may include taxes, insurance, and PMI if applicable.

Q4: How can I pay less interest overall?
A: Make extra principal payments when possible, choose a shorter term, or refinance at a lower rate when available.

Q5: Are there other types of loan calculations?
A: Yes, some loans use simple interest or have variable rates. This calculator assumes fixed-rate, fully amortizing loans.