1. What is the Loan Payment Formula?

The loan payment formula (PMT) calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. It's the standard calculation used for most fixed-rate mortgages and installment loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

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

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and ensures you can afford the loan. It also shows how much interest you'll pay over the loan's life.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate (as a percentage), and loan term (in years or months). For accurate results, use the actual interest rate you've been quoted.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: The interest rate is the base cost of borrowing, while APR includes fees and other loan costs. Always use the interest rate for this calculation.

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 interest.

Q3: Are property taxes and insurance included?
A: No, this calculates principal and interest only. A full mortgage payment often includes escrow for taxes and insurance.

Q4: How does extra principal payment affect the loan?
A: Extra payments reduce the principal faster, saving interest and potentially shortening the loan term.

Q5: What's amortization?
A: The process of paying off debt with regular payments that cover both principal and interest over time.