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Loan Payment Formula:
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The PMT formula calculates the fixed monthly payment required to repay a home loan over a specified term, including both principal and interest. This is the standard calculation used for most fixed-rate mortgages in the US.
The calculator uses the standard loan payment formula:
Where:
Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will completely pay off the loan by the end of the term.
Details: Understanding your monthly payment helps with budgeting and determining how much house you can afford. It also shows the true cost of borrowing through the total interest paid over the life of the loan.
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. The calculator will show your estimated monthly payment, total repayment amount, and total interest paid.
Q1: Does this include property taxes and insurance?
A: No, this calculates only principal and interest. A complete mortgage payment typically includes taxes and insurance (PITI).
Q2: How does the loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. A 15-year loan will have higher payments than a 30-year loan for the same amount but save thousands in interest.
Q3: 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, giving a more complete picture of the loan's cost.
Q4: Can I use this for adjustable-rate mortgages (ARMs)?
A: This calculator is for fixed-rate loans only. ARM payments will change when the interest rate adjusts.
Q5: How can I pay less interest overall?
A: Make extra principal payments when possible, choose a shorter loan term, or refinance to a lower rate when available.