Monthly Payment (Yearly Interest Rate)
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This equation computes the fixed monthly payment on a fixed rate mortgage.
Inputs
The monthly payment is defined by:
- r - the annual interest rate (the yearly percentage rate will be divided by 12)
- n - the number of monthly payments ( for a 30 year loan `n = 30 * 12 = 360`)
- P - the principal amount borrowed.
Note: The interest rate is entered as the yearly rate. For example a 2% Annualized Percentage Rate (APR) is entered as 0.02.
Definition
The monthly payment on a mortgage loan (fixed rate loans only, often a "30 year fixed" or "20 year fixed") 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 is included in the monthly payment.
Usage Examples
Assume you buy a home loan for $200,000 with a fixed yearly interest rate of 6.5% and plan to pay it off for 30 years,
the principal is P=200000,
the yearly interest (entered as 0.065) will be calculated to a monthly interest rate of r=(0.065/12),
the number of monthly payments is N=30 years * 12 months=360,
the fixed monthly payment will be calculated to equal $1,264.14.
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