1. What is the PMT Formula?

The PMT (Payment) formula calculates the fixed monthly payment required to pay off a loan over a specified period, including both principal and interest. It is commonly used for seller-financed mortgage calculations.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (dimensionless)
• \( n \) — Number of monthly payments (count)

Explanation: The formula calculates the fixed payment amount that covers both interest and principal repayment over the loan term.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is crucial for budgeting, financial planning, and ensuring both buyer and seller understand the repayment terms in seller-financed mortgage agreements.

4. Using the Calculator

Tips: Enter principal in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and number of payments. All values must be valid (principal > 0, rate > 0, payments ≥ 1).

5. Frequently Asked Questions (FAQ)

Q1: What is seller financing?
A: Seller financing occurs when the property seller provides a loan to the buyer instead of the buyer obtaining traditional bank financing.

Q2: How is monthly interest rate calculated from annual rate?
A: Divide the annual interest rate by 12. For example, 6% annual rate = 0.06/12 = 0.005 monthly rate.

Q3: What factors affect the monthly payment amount?
A: The three main factors are loan amount (principal), interest rate, and loan term (number of payments).

Q4: Are there any additional costs in seller financing?
A: While seller financing may avoid some traditional closing costs, there may still be legal fees, recording fees, and potential points or origination fees.

Q5: Can this calculator be used for other types of loans?
A: Yes, the PMT formula works for any fixed-rate amortizing loan, including auto loans, personal loans, and traditional mortgages.