1. What is the PMT Formula?

The PMT formula calculates the fixed monthly payment required to pay off an amortizing home equity loan over a specified period. It accounts for both principal and interest payments.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( PMT \) — Monthly payment (currency/month)
• \( P \) — Loan principal (currency)
• \( r \) — Monthly interest rate (annual rate ÷ 12, decimal)
• \( n \) — Number of months (years × 12, unitless)

Explanation: The formula calculates the fixed payment that covers both interest and principal repayment over the loan term.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is crucial for budgeting, loan comparison, and ensuring the payment is affordable within your financial constraints.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is an amortizing loan?
A: An amortizing loan has regular payments that cover both interest and principal, with the balance decreasing over time until fully paid off.

Q2: How does interest rate affect the monthly payment?
A: Higher interest rates increase monthly payments, while lower rates reduce them. Even small rate changes can significantly impact the payment amount.

Q3: What is included in the monthly payment?
A: This calculation includes principal and interest only. Actual payments may include property taxes, insurance, and PMI if applicable.

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

Q5: How accurate is this calculator for real-world scenarios?
A: It provides accurate principal and interest calculations, but consult with lenders for exact figures including fees and insurance.