1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It's used for refinance loans, home equity loans, and most fixed-rate mortgages.

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 both principal repayment and interest charges, with payments structured so the loan is paid off exactly by the end of the term.

3. Importance of Loan Payment Calculation

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

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate (as a percentage), and loan term in years. For accurate results, use the actual interest rate you qualify for, not just advertised rates.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between refinance and home equity loans?
A: Refinance replaces your existing mortgage, while home equity loans are second mortgages that let you borrow against your home's value.

Q2: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms lower monthly payments but increase total interest costs.

Q3: Are there other costs not included in this calculation?
A: Yes, this doesn't include property taxes, insurance, or loan fees which may be part of your actual payment.

Q4: What's amortization?
A: The process of paying off debt with regular payments that cover both principal and interest over time.

Q5: Can I use this for adjustable-rate loans?
A: Only for fixed-rate periods. ARM payments will change when rates adjust.