# How to Calculate a Loan Payment

In order to calculate a loan payment, you will need to know the following: the loan limit, the loan term, the interest rate and how it is calculated. For example, you may know your interest rate, but few mortgages use simple interest. Gather all of these items first, and then use the following calculation to determine how much you will owe each month.

Determining Interest Rate per Term

The hardest part of this equation is determining your interest per term. It is found using a complicated formula:

Rate + [Rate/([(1 + rate)^number of months]-1)]

This seems tricky, but it can be factored down slowly. Let's use an example: You have a 8 percent interest rate on a 30 year mortgage.

• Start by stating your interest as an annual percentage rate. To do this, divide it by 1200 (100 per month). For 8 percent, the APR is .00666.
• Add 1 to this number, and you get 1.00666
• Determine how many payments are on your loan. In a 30 year mortgage, there are 30 X 12 payments, or 360.
• Compute 1.00666 to the 360th power. The result is 10.936.
• Subtract 1, and you get 9.936
• Divide your original APR of .00666 by 9.936
• You get an answer of .000671
• Add this to your initial interest rate, and you get the sum .00734
• This is your realized interest rate. You can plug this into the main formula in the step below.

Determining Monthly Payment

Now, you can simply use the realized interest rate of .00734 in the main formula. Multiply this by your principal loan sum. In this example, we will imagine your principal is \$250,000. This means you will have a monthly payment of \$1,835 to pay off your loan in the standard 30 year time frame. You will end up paying \$660,000 to pay off the loan once you have accounted for the effect of interest. 