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 commonly used for mortgage refinancing calculations.

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 years × 12)

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

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment is crucial when refinancing to determine affordability, compare loan options, and plan your household budget.

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. Your actual mortgage payment may include escrow for taxes and insurance.

Q2: How does refinancing save money?
A: Refinancing can lower payments by reducing interest rate or extending term, or save total interest by shortening term.

Q3: What's the difference between APR and interest rate?
A: Interest rate is the cost of borrowing, while APR includes fees and other loan costs to show the true annual cost.

Q4: Should I pay points to lower my rate?
A: Points (prepaid interest) may be worth it if you'll keep the loan long enough to recoup the cost through lower payments.

Q5: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid over the life of the loan.