Monthly payment calculation using formula:

 

Let

            P = the amount borrowed

            r =  the monthly interest rate

            n = the number of months of the loan

M = the monthly payment

Then,

           M = P(1+r)n r / [(1+r)n-1]

 

Example 1:   One borrows $1,000.00 from a credit card company at 18% annually for two years. What is your monthly payment?

 

Solution:                P= $1,000

                        r = 1.5% per month

                        n = 24 months

 Thus,

                        M=1,000(1+.015)24(.015)/[(1+.015)24-1]= $49.92.

 

Example 2:  One borrow a mortgage loan of $150,000.00 from a bank at 6% APR for a fixed 15 years. What is the monthly payment?

 

Solution:          P=$150,000.00

                         r = 6% annually=0.5% monthly

                         n = 15 years = 180 months

Thus,

                        M=150,000 (1+.005)180(.005)/[1.005180-1]=$1,265.79.