How Loan Payments Are Calculated

The monthly payment calculation is based on the amortization formula. This formula ensures that the payment remains constant throughout the loan term and that the loan is fully paid off by the last payment.

The Amortization Formula:

$$P = L \left[ \frac{i (1 + i)^n}{(1 + i)^n – 1} \right]$$

Where:

• $P$: Monthly Payment
• $L$: Loan Amount (Principal)
• $i$: Monthly Interest Rate (Annual Rate divided by 1200)
• $n$: Total number of payments (Loan Term in years multiplied by 12)

**Note:** This calculator assumes fixed, compounded monthly interest and does not account for taxes, insurance, or other potential fees (like PMI) that may be included in an actual mortgage payment.