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 both principal and interest. This is known as the PMT formula in financial mathematics.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Loan principal amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (years × 12)
• \( PMT \) — Monthly payment amount ($)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing through total interest calculations.

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: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. A complete mortgage payment may include taxes, insurance, and PMI.

Q2: How does a larger down payment affect the payment?
A: A larger down payment reduces the loan amount (P), which directly reduces your monthly payment.

Q3: What's better - shorter term with higher payments or longer term with lower payments?
A: Shorter terms mean less total interest paid but higher monthly payments. Longer terms have lower payments but more total interest.

Q4: How does refinancing affect my loan?
A: Refinancing can lower payments if you get a lower rate, but extending the term may increase total interest paid.

Q5: Are there other loan types with different calculations?
A: Yes, interest-only loans and adjustable-rate mortgages (ARMs) have different payment structures not covered by this calculator.