Monthly Payment (Monthly Interest Rate)

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

INPUTS

Inputs to this equation are:

• n - number of monthly payments
• r - periodic (monthly) interest rate
• P - the principal or present value at the start of the loan

NOTES

The interest rate input for this equation is a "monthly interest rate",  which is not the same as the Annualized Percentage Rate (APR).

This is a payment calculation for a fixed rate loans only; i.e, for a loan that is often a "30 year fixed" or "20 year fixed" and is defined to pay off the entire loan amount within some fixed period -- like the common 30 years period.

The entire balance of the loan includes the interest paid on the borrowed amount and this is included in the monthly payment.  This equation is very similar to the annuity equation. The monthly payment is defined by the monthly interest rate (the yearly percentage rate divided by 12), the number of monthly payments, and principal amount borrowed.