# Archives April 2020

## Generic formula

=PMT(rate,periods,-amount)

## Explanation

To calculate a loan payment amount, given an interest rate, the loan term, and the loan amount, you can use the PMT function. In the example shown, the formula in C10 is:

=PMT(C6/12,C7,-C5)

## How this formula works

Loans have four primary components: the amount, the interest rate, the number of periodic payments (the loan term) and a payment amount per period. You can use the PMT function to get the payment when you have the other 3 components.

For this example, we want to find the payment for a \$5000 loan with a 4.5% interest rate, and a term of 60 months. To do this, we configure the PMT function as follows:

rate – The interest rate per period. We divide the value in C6 by 12 since 4.5% represents annual interest, and we need the periodic interest.

nper – the number of periods comes from cell C7; 60 monthly periods for a 5 year loan.

pv – the loan amount comes from C5. We use the minus operator to make this value negative, since a loan represents money owed.

With these inputs, the PMT function returns 93.215, rounded to \$92.22 in the example using the currency number format.

## How to calculate how much a mortgage payment would cost you every month

You can calculate your monthly mortgage payment, not including taxes and insurance, using the following equation:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]

P = principal loan amount
i = monthly interest rate
n = number of months required to repay the loan

Once you calculate M (monthly mortgage payment), you can add in the monthly property tax and homeowners insurance premium, if you have them. These are fixed costs that aren’t determined by how much you borrow from the bank, so they can easily be added to the monthly cost.