How is the monthly payment calculated?
For fixed-payment loans, the monthly amount is calculated with the annuity formula: monthly payment = (amount × monthly rate) ÷ (1 − (1 + monthly rate)^−term).
This formula assumes an equal payment every month, with the interest portion of the payment decreasing over time.
Why is the interest rate entered monthly?
Lenders typically quote loan interest rates on a monthly basis; this tool uses the monthly rate your bank gives you directly.
If you need an annual figure, you can multiply the monthly rate by 12; due to compounding, the real annual cost ends up a bit higher, which is what the effective annual rate below shows.
Why might this differ from a real bank offer?
Banks may add costs beyond interest, such as origination fees, taxes, or life insurance; this tool only calculates principal and interest.
Check the lender's stated annual percentage rate (APR) to see the real total cost.
What to consider when deciding on a loan amount
Calculate based on the amount remaining after your down payment; keeping the monthly payment realistic relative to your income reduces long-term risk.
Comparing different term options shows the trade-off between the monthly payment and the total interest paid.