How the payment is calculated
For a fixed-rate mortgage or loan with a constant payment (a standard amortising loan) the formula is:
Payment = P × i ÷ (1 − (1 + i)−n), where P is the principal, i the monthly rate (annual rate ÷ 12) and n the number of payments.
Example: 150,000 at 3.5% over 25 years. Monthly rate 0.2917%, 300 payments: a payment of about 751, for a total of 225,300 of which 75,300 is interest.
Reading the amortisation schedule
Every payment is made up of an interest part and a principal part. Early on, interest is high because the balance is large; over the years the principal part grows and the interest shrinks. That is why paying off early saves more in the first years, and why after 5 years of a 25-year mortgage you have repaid far less than a fifth of the principal.
Interest rate vs APR
The calculator uses the nominal annual interest rate. The APR also includes arrangement fees, valuation, compulsory insurance and taxes, and is the right number for comparing offers from different lenders. Depending on the country there may be additional closing costs, notary or stamp duty.
How much the term matters
A longer term lowers the payment but greatly increases the total interest: the same 150,000 at 3.5% costs 75,300 in interest over 25 years and about 92,500 over 30 years. Try different terms to find the balance between an affordable payment and the overall cost. As a prudent rule, the payment should not exceed a third of your net monthly income.
Frequently asked questions
Does this work for personal and car loans too?
Yes: the constant-payment formula is the same for mortgages, personal loans and financing. Enter the amount, the interest rate and the term.
Why is my lender's payment slightly different?
Because lenders may count actual days instead of equal months, round differently and add fees and insurance. The difference is usually a few units of currency.
How do I use the amortisation schedule?
Press "Show amortisation schedule": for every payment you see the interest part, the principal part and the remaining balance, with yearly totals. The balance tells you how much you would need to pay to settle the loan at that point.