How To Calculate Loan Payments

Here you will learn how to calculate loan payments on a car or even a mortgage, in fact any type of loan. We show you how to use a simple Excel formula in the video below to calculate mortgage loan payment, calculate loan balance outstanding or calculating loan amortization.

Your payment depends upon the size of you loan and the time length of it. The principal calculated by deducting the down payment from the total purchasing price of the house. The closing costs, property taxes and private home mortgage insurance, if applicable is added to the principal.


Interest accrues monthly on the principal amount in standard interest rates. In a home mortgage loan with simple rates of interest, the interest is calculated daily. Some lenders may claim that paying bi-weekly is beneficial to the borrower, but actually the has to pay even more interest if he chooses this method of payment.

Check out this video on how to calculate loan payments.






If you prefer to use a simple online loan estimate payment calculator, check out this one.

The kind of mortgage the borrower has chosen determines the loan payments. Interest only mortgage has a low monthly payment in the beginning because you are only paying interest for a certain period of time. At the end of this period the mortgage payments will increase.  The borrower will pay more interest overall with this kind of loan.

Balloon payments mean that the borrower pays a low monthly amount in the beginning for a certain period of time.  Within 5-7 years one payment for the remainder of the loan will become due.  This is called the balloon payment.  Borrowers must either pay it off or refinance for the balance.

If the loan is a fixed rate the interest rate will not change for the entire rate of the loan.  This usually works to your benefit.  If the loan carries a variable interest rate the interest rate can go up or down depending on the federal lending rate.  The borrower pays more if the interest rate rises and less if the interest rate drops.  This is usually not to the borrower’s advantage.

The more of a down payment you make the fewer payments you will have to make. A shorter period of loan can greatly reduce the amount you have to pay. A longer loan term increases the total amount that you have to pay but it keeps your loan payments lower and they stay the same for the entire loan.  If you are on a tight budget it may be advantageous for you to run your loan as long as possible and then pay extra on the principal if you are able to do so.

You income to debt ratio is the main determining factor in how much of a mortgage payment you can qualify for.  It is possible to reduce the total amount you pay back by making periodic payments on the principal amount.  You will decrease both the principal and the total amount of interest you must pay by doing this. If you receive bonuses from your job or get nice refunds on your income tax, the loan amount will decrease drastically if you use this money to clear part of the loan. Sometimes, the lender will charge a small fee this type of arrangement.

The points on a mortgage loan will increase the amount you pay.  The higher the points charged by the broker, the higher your loan will be.  Watch carefully what the market rate will be at the time of your agreement for a certain type of mortgage.  Try making your agreement when points are low.  Market rates can vary during the time period a loan is agreed upon and when the paperwork is actually submitted. If you are not aware of the market the lender may not tell you that points have dropped.


How To Calculate Loan Payments