Loan Amount Calculator

What is a Loan Amount Calculator?

A Loan Amount Calculator is a financial tool that helps borrowers estimate their mortgage payments. This payment schedule can lead to significant savings over the life of the loan by reducing the total interest paid and potentially shortening the loan term.

Formula for Loan Amount Calculation

The formula for calculating the payment on a mortgage is:

\[B = \frac{P \times r \times (1 + r)^n}{(1 + r)^n - 1} \times \frac{1}{2}\]

Where:

• B = Payment
• P = Principal Loan Amount
• r = Monthly Interest Rate (Annual Rate / 12)
• n = Total Number of Payments (Loan Term in Years × 24)

Calculation Steps

1. Calculate the monthly interest rate by dividing the annual rate by 12.
2. Determine the total number of payments by multiplying the loan term in years by 24.
3. Apply the formula to calculate the payment.
4. Calculate the total interest paid by multiplying the payment by the number of payments and subtracting the original loan amount.

Example

Let's consider a scenario with the following details:

• Loan Amount: $250,000
• Interest Rate: 4% per year
• Loan Term: 30 years

Calculation:

1. Monthly interest rate: 4% / 12 = 0.3333%
2. Number of payments: 30 × 24 = 720
3. Payment: $596.44
4. Total interest paid: $179,434.80

In this example, the borrower would pay $596.44. Over the 30-year term, they would pay a total of $429,434.80, of which $179,434.80 is interest. This payment schedule can result in significant savings compared to a traditional monthly payment plan.