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 amortizing loan formula.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( M \) — Monthly payment
• \( P \) — 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, calculating a fixed payment that pays off both principal and interest by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and determining how much you can afford to borrow.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, and loan term. You can specify the term in years or months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. A full mortgage payment might include escrow for taxes and insurance.

Q2: How does a larger down payment affect payments?
A: A larger down payment reduces the principal (P), resulting in lower monthly payments.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing the principal.

Q4: How can I pay less interest overall?
A: Make additional principal payments or choose a shorter loan term to reduce total interest paid.

Q5: Why does my payment stay the same if rates change?
A: This calculates fixed-rate loans. For adjustable-rate loans, payments would change when rates adjust.