Conventional loan payments consist of a portion that pays interest accumulation since the last payment and a portion that pays down the principal, or outstanding balance, of the loan. You can easily calculate payment amounts on a loan with a fixed interest rate and equal periodic payments if you know the original loan amount and total number of payments. You don't even need a financial calculator to do so: any calculator with an exponent key will do.
Instructions
1.Determine the periodic interest rate from the nominal (stated) interest rate. The nominal interest rate is defined as the periodic interest rate times the number of times the interest is compounded per year. For example, a nominal interest rate of 6 percent indicates a monthly periodic interest rate of 0.5 percent.
2.Identify the total number of payments for the loan. Denote it with the letter "n." Identify the original loan amount. Denote it with the letter "p" for principal.
3.Calculate (1 + i)^n, where "^n" means that you're raising (1 + i) to the "nth" power. Denote it with the letter "x." For example, 30-year mortgages have 360 monthly payments. For a periodic interest rate of 0.5 percent, x = (1.005)^360 = 6.023, after rounding.
4.Calculate the periodic payment by solving pxi/(x - 1). For example, if the original loan amount is $300,000, the periodic interest rate is 0.5 percent and x is 6.023, then the periodic payment is $1,798.63.
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