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Loan Payment Formula:
The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. This is known as the PMT (payment) formula in financial mathematics.
The calculator uses the standard loan payment formula:
Where:
Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal reduction.
Details: In the early years of a loan, most of each payment goes toward interest rather than principal. Over time, this ratio reverses as the principal balance decreases.
Tips: Enter the loan amount, annual interest rate (as a percentage), and loan term in years. The calculator will show your estimated monthly payment, total repayment amount, and total interest paid.
Q1: How does the interest rate affect my payment?
A: Higher rates significantly increase monthly payments. A 1% rate increase on a $300,000 loan can add $150-$200 to the monthly payment.
Q2: Should I choose a 15-year or 30-year mortgage?
A: 15-year loans have higher payments but save thousands in interest. 30-year loans offer lower payments but cost more overall.
Q3: How can I reduce my total interest paid?
A: Make extra principal payments, refinance to a lower rate when possible, or choose a shorter loan term.
Q4: Are property taxes and insurance included?
A: No, this calculates principal and interest only. Your actual payment may include escrow for taxes and insurance.
Q5: How accurate is this calculator?
A: It provides precise calculations based on the inputs, but actual loan terms may vary slightly based on lender fees and rounding methods.