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 interest. This is the standard formula used for fixed-rate mortgages and installment loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, calculating the fixed payment needed to pay off both principal and interest.

3. Importance of Comparing Rates

Details: Even small differences in interest rates can significantly impact your monthly payment and total interest paid over the life of the loan. Comparing rates helps you find the most cost-effective financing option.

4. Using the Calculator

Tips: Enter the loan amount in dollars, loan term in years, and two different interest rates to compare. The calculator will show the monthly payment for each rate and the difference between them.

5. Frequently Asked Questions (FAQ)

Q1: How much difference does 0.25% make on a loan?
A: On a $300,000 30-year loan, 0.25% difference equals about $44/month or $15,840 over the loan term.

Q2: Should I choose a lower rate or shorter term?
A: Shorter terms save more interest but have higher payments. Compare both options to see what fits your budget.

Q3: Are there other costs not included in this calculation?
A: Yes, this calculates principal and interest only. Actual payments may include taxes, insurance, and fees.

Q4: How does loan term affect total interest?
A: Longer terms have lower monthly payments but pay more total interest. Short terms pay less interest but have higher payments.

Q5: What's considered a good mortgage rate?
A: Rates vary by market conditions. Compare current averages and shop multiple lenders for the best rate.