This equation computes the monthly payment on a fixed rate mortgage loan.

INPUTS

• r - the annual interest rate entered as a percentage; in other words, you enter 4.8 for a 4.8% annual interest rate
• n - the number of years of the term of the loan
• freq - the number of compounding periods per year
• P - the principal amount borrowed

NOTES

The entire balance of the loan includes the interest paid on the borrowed amount and is included in the monthly payment.

The term of a loan is often a standard period such as a "30 year fixed" or "20 year fixed" mortgage.  This equation is defined to pay off the entire loan amount within the specified fixed period.

EXAMPLES

Assume you buy a standard home loan for $200,000 with a fixed yearly interest rate of 6.5% and plan to pay it off in a term of 30 years, 

the principal is P=200000,

the yearly interest is r= 0.065

             the frequency is freq= 12 compounding periods per year

the term of the loan is n= 30 years

The fixed monthly payment calculated will be:  $1,264.14.