How loan payments are calculated
Most fixed-rate loans use an amortization formula. Each monthly payment covers the interest for that month plus part of the principal. Early payments are mostly interest, while later payments are mostly principal.
The formula
Monthly payment = P × r ÷ (1 − (1 + r)−n), where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12) and n is the total number of monthly payments.
Ways to reduce total interest
- Choose a shorter loan term; payments are higher, but total interest drops significantly.
- Make a larger down payment to borrow less.
- Make extra principal payments when possible.
- Compare rates from several lenders before signing.
- Improve your credit score to qualify for lower rates.
Important note
This calculator provides estimates only. Real loans may include fees, insurance, property taxes or variable rates that change your actual payment. Always confirm details with your lender.
Frequently asked questions
Does this include taxes and insurance?
No. It calculates principal and interest only. Mortgage escrow items like taxes and insurance are extra.
What if the interest rate is 0%?
The calculator divides the loan amount equally across all months.
Is this financial advice?
No. It is an estimation tool. Consult a qualified financial professional for decisions.