Monthly Payment Calculator Ordinary Annuity

Ordinary Annuity Payment Formula:

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

Monthly Payment (PMT):

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1. What is the Ordinary Annuity Payment Formula?

The Ordinary Annuity Payment Formula calculates the fixed periodic payment required to pay off a loan over a specified term, with payments made at the end of each period. It's commonly used for mortgage, auto loan, and personal loan calculations.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

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

Where:

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

Explanation: The formula calculates the fixed payment needed to fully amortize a loan over the specified term, accounting for both principal and interest.

3. Importance of Payment Calculation

Details: Accurate payment calculation is essential for financial planning, budgeting, and comparing different loan options. It helps borrowers understand their repayment obligations before committing to a loan.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity payments are made at the end of each period, while annuity due payments are made at the beginning. Most loans use ordinary annuity calculations.

Q2: Does this include taxes and insurance?
A: No, this calculates only the principal and interest payment. Additional costs like property taxes, insurance, or PMI are not included.

Q3: How does loan term affect the payment?
A: Longer terms result in lower monthly payments but higher total interest paid over the life of the loan.

Q4: What if I want to make extra payments?
A: Extra payments reduce the principal faster, potentially shortening the loan term and reducing total interest paid.

Q5: Are there any loans this doesn't work for?
A: This formula works for fixed-rate loans. Adjustable-rate loans, interest-only loans, or loans with balloon payments require different calculations.