Monthly Payment Amount Calculator

Monthly Payment Formula:

\[ Payment = P \times \frac{r(1+r)^n}{(1+r)^n - 1} \]

Monthly Payment:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Monthly Payment Formula?

The monthly payment formula calculates the fixed payment amount required to pay off a loan over a specified period, including both principal and interest components. This is commonly known as the amortization formula.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ Payment = P \times \frac{r(1+r)^n}{(1+r)^n - 1} \]

Where:

$ P $ — Principal loan amount ($)
$ r $ — Monthly interest rate (annual rate ÷ 12)
$ n $ — Total number of payments (loan term in years × 12)

Explanation: The formula calculates the fixed monthly payment needed to completely pay off the loan over the specified term, accounting for compound interest.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is essential for budgeting, loan comparison, financial planning, and ensuring affordability before committing to a loan.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is included in the monthly payment?
A: The monthly payment includes both principal repayment and interest charges. For mortgages, it may also include taxes and insurance if escrowed.

Q2: How does loan term affect monthly payments?
A: Longer loan terms result in lower monthly payments but higher total interest paid over the life of the loan.

Q3: What is amortization?
A: Amortization is the process of paying off a loan through regular payments over time, where early payments consist mostly of interest and later payments consist mostly of principal.

Q4: Can I calculate payments for different compounding periods?
A: This calculator assumes monthly compounding, which is standard for most consumer loans. Other compounding periods would require formula adjustments.

Q5: How accurate is this calculator?
A: The calculator provides accurate estimates for fixed-rate loans. Actual payments may vary slightly due to rounding methods used by specific lenders.