Payment Calculator

How Loan Payments Work

Loan payments typically include both principal (the amount borrowed) and interest (the cost of borrowing). Most loans use an amortization schedule, which means each payment contains a different proportion of principal and interest, but the total payment remains the same throughout the loan term.

For a standard loan with fixed payments, the formula used to calculate the monthly payment is:

Mortgage Payment Components

Mortgage payments often include more than just principal and interest. The total payment may consist of four components, sometimes referred to as PITI:

• Principal and Interest (P&I): The basic payment towards your loan balance and interest
• Property Taxes: Annual taxes assessed by local governments, usually collected monthly as part of the mortgage payment
• Home Insurance: Coverage for your home against various perils, also typically collected monthly
• Private Mortgage Insurance (PMI): Required if your down payment is less than 20% of the home's value

Understanding each component helps you budget accurately for your total housing expense.

Credit Card Payment Strategies

There are two main approaches to paying off credit card debt:

1. Fixed Payment Method: You decide how much you can afford to pay each month and stick with that amount. The calculator will show you how long it will take to pay off the debt.
2. Fixed Time Method: You set a goal for when you want to be debt-free, and the calculator determines how much you need to pay each month to achieve that goal.

Credit card interest is typically calculated daily, using your average daily balance and the APR divided by 365 or 360, depending on the card issuer. This makes it especially important to pay more than the minimum payment to reduce the principal and minimize interest charges.

What is amortization?

Amortization is the process of spreading out a loan into a series of fixed payments over time. Each payment is applied toward both interest and principal, with early payments primarily going toward interest and later payments primarily toward principal.

What's the difference between interest rate and APR?

The interest rate is the cost of borrowing the principal, while the Annual Percentage Rate (APR) includes both the interest rate and any additional fees or costs associated with the loan. APR provides a more comprehensive view of the total cost of borrowing.

How can I lower my monthly payment?

You can lower your monthly payment by extending the loan term, refinancing at a lower interest rate, making a larger down payment, or negotiating lower fees. Keep in mind that extending the loan term may increase the total interest paid over the life of the loan.

What is Private Mortgage Insurance (PMI)?

PMI is insurance that protects the lender if you stop making payments on your home loan. It's typically required when your down payment is less than 20% of the home's purchase price. Once your equity reaches 20%, you can usually request to have PMI removed.