1. What is Principal and Interest Calculation?

The Principal and Interest (P&I) calculation determines the monthly payment amount for a loan, where part goes toward repaying the principal and part covers the interest charges.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( Principal \) — Original loan amount ($)
• \( Rate \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (months)

Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term.

3. Importance of P&I Calculation

Details: Understanding your principal and interest payment helps with budgeting and shows how much of each payment goes toward reducing your loan balance versus paying interest.

4. Using the Calculator

Tips: Enter the loan amount in dollars, monthly interest rate as a percentage (e.g., 0.5 for 0.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is monthly interest rate calculated?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.5% monthly rate (0.005 in decimal).

Q2: Does this include taxes and insurance?
A: No, this calculates only principal and interest. A full mortgage payment might include escrow for taxes and insurance.

Q3: How does payment change over time?
A: Early payments are mostly interest; later payments apply more to principal, though the total payment remains constant.

Q4: What's the difference between P&I and PITI?
A: P&I is principal and interest only. PITI includes principal, interest, taxes, and insurance.

Q5: How can I pay less interest overall?
A: Make extra principal payments or choose a shorter loan term to reduce total interest paid.