1. What is the Amortization Formula?

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

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( PMT \) — Monthly payment (currency/month)
• \( P \) — Loan principal (currency)
• \( r \) — Monthly interest rate (decimal/month)
• \( n \) — Number of payments (count)

Explanation: The formula calculates the fixed payment amount that will completely pay off the loan over the specified number of periods, accounting for compound interest.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is crucial for budgeting, loan comparison, and financial planning. It helps borrowers understand their repayment obligations and lenders assess affordability.

4. Using the Calculator

Tips: Enter loan principal in currency units, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and number of payments. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly rate?
A: Divide the annual interest rate by 12. For example, 6% annual = 0.06/12 = 0.005 monthly.

Q2: What if I want to calculate total interest paid?
A: Total interest = (Monthly payment × Number of payments) - Loan principal.

Q3: Can this formula be used for different payment frequencies?
A: Yes, adjust the rate and number of payments accordingly (e.g., for quarterly payments, use quarterly rate and quarterly payment count).

Q4: What are typical loan terms?
A: Common terms include 15-year (180 payments) and 30-year (360 payments) mortgages, 3-7 year auto loans (36-84 payments).

Q5: Does this include taxes and insurance?
A: No, this calculates only principal and interest. Additional costs like property taxes and insurance are separate.