1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term at a given interest rate. It's based on the time value of money principle and is used for standard amortizing loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment amount
• \( PV \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula accounts for both principal repayment and interest charges, with more interest paid early in the loan term.

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting, comparing loan offers, and making informed borrowing decisions. It shows the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, and loan term in years. 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. Actual mortgage payments may include escrow for taxes and insurance.

Q2: How does extra payments affect the loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.

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

Q4: How does loan term affect payments?
A: Shorter terms mean higher payments but less total interest. Longer terms lower payments but increase total interest.

Q5: What about adjustable rate loans?
A: This calculator assumes fixed rates. ARM payments will change when rates adjust.