1. What is the PMT Loan Formula?

The PMT formula calculates the fixed monthly payment required to pay off a loan over a specified term at a given interest rate. It's the standard calculation used for most fixed-rate mortgages and loans.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both principal and interest.

3. Importance of APR in Loans

Details: The Annual Percentage Rate (APR) reflects the true cost of borrowing, including interest and certain fees. A lower APR means lower total payments over the loan term.

4. Using the Calculator

Tips: Enter the loan amount in dollars, APR as a percentage (e.g., 3.5 for 3.5%), and loan term in years. The calculator will show monthly payment, total repayment, and total interest.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: APR includes both the interest rate and certain fees, giving a more complete picture of loan costs.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total cost.

Q3: Are there loans this doesn't work for?
A: This works for fixed-rate loans. Adjustable-rate mortgages (ARMs) require more complex calculations.

Q4: What about additional fees?
A: This calculates principal and interest only. Property taxes, insurance, and PMI would be additional.

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