Monthly Payment Ordinary Annuity Calculator

Ordinary Annuity Payment Formula:

\[ P = \frac{PV \times r}{1 - (1 + r)^{-n}} \]

Monthly Payment (P):

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1. What is the Ordinary Annuity Payment Formula?

The Ordinary Annuity Payment Formula calculates the fixed periodic payment required to pay off a loan or investment over a specified period at a given interest rate. It is commonly used for mortgage calculations, car loans, and retirement planning.

2. How Does the Calculator Work?

The calculator uses the annuity payment formula:

\[ P = \frac{PV \times r}{1 - (1 + r)^{-n}} \]

Where:

\( P \) — Monthly payment amount
\( PV \) — Present value or principal amount
\( r \) — Interest rate per period (decimal)
\( n \) — Total number of payment periods

Explanation: The formula calculates the fixed payment needed to fully amortize a loan over the specified number of periods at the given interest rate.

3. Importance of Annuity Payment Calculation

Details: Accurate payment calculation is crucial for financial planning, budgeting, loan comparisons, and ensuring borrowers can afford their debt obligations.

4. Using the Calculator

Tips: Enter the present value in currency units, interest rate as a decimal (e.g., 0.05 for 5%), and number of payment periods in months. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between ordinary annuity and annuity due?
A: Ordinary annuity payments are made at the end of each period, while annuity due payments are made at the beginning of each period.

Q2: How do I convert annual interest rate to monthly?
A: Divide the annual rate by 12. For example, 12% annual rate = 1% monthly rate (0.01 as decimal).

Q3: What if I want to calculate payments for years instead of months?
A: Use annual interest rate and number of years instead of monthly values in the calculation.

Q4: Does this formula work for all types of loans?
A: This formula works for fixed-rate, fully amortizing loans. It may not apply to interest-only loans or loans with balloon payments.

Q5: How does extra payments affect the calculation?
A: Extra payments reduce the principal faster, shortening the loan term and reducing total interest paid, but they are not accounted for in this basic calculation.