How loan payments are calculated
Loan payments are calculated using an amortization formula that ensures equal monthly payments throughout the loan term, while the split between principal and interest changes each month.
Monthly payment formula:
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (years × 12)
Example: $200,000 mortgage at 6.5% for 30 years
Monthly rate: 6.5% ÷ 12 = 0.5417% Number of payments: 30 × 12 = 360
Monthly payment = $200,000 × [0.005417 × (1.005417)³⁶⁰] / [(1.005417)³⁶⁰ − 1] = $1,264.14 per month
Over 30 years:
- Total paid: $1,264.14 × 360 = $455,089
- Total interest: $455,089 − $200,000 = $255,089
- You pay 127% of the loan amount in interest!
How amortization works
Early payments are mostly interest; later payments are mostly principal:
| Payment | Principal | Interest | Balance |
|---|---|---|---|
| Month 1 | $181 | $1,083 | $199,819 |
| Month 12 | $191 | $1,073 | $197,697 |
| Month 60 (year 5) | $220 | $1,044 | $193,220 |
| Month 180 (year 15) | $337 | $927 | $171,073 |
| Month 300 (year 25) | $517 | $747 | $138,010 |
| Month 360 (year 30) | $1,257 | $7 | $0 |
Impact of interest rate on total cost
| Rate | Monthly Payment | Total Interest (30yr, $200K) |
|---|---|---|
| 4.0% | $954 | $143,739 |
| 5.0% | $1,074 | $186,512 |
| 6.0% | $1,199 | $231,676 |
| 6.5% | $1,264 | $255,089 |
| 7.0% | $1,331 | $279,018 |
| 8.0% | $1,468 | $328,310 |
Vietnamese bank loans (vay ngân hàng)
Vietnamese banks typically offer:
- Home loans: 8–12% annual rate
- Personal loans: 12–20% annual rate
- Car loans: 8–11% annual rate
Example: 500,000,000 VND home loan at 10% for 20 years: Monthly payment ≈ 4,825,000 VND Total interest ≈ 658,000,000 VND (131% of principal)
Tips to reduce total loan cost
- Make extra payments: Even $50/month extra on a 30-year mortgage saves years and thousands in interest
- Refinance when rates drop: If rates fall 1%+, refinancing can save significantly
- Shorter term: A 15-year mortgage at 6% vs 30-year at 6% saves ~$100,000 in interest
- Larger down payment: Reduces principal and may qualify you for better rates
How to calculate loan payments free
- Go to Loan Calculator
- Enter loan amount, interest rate, and term
- See monthly payment, total cost, and full amortization table
- Compare multiple loan scenarios side by side
- Download amortization table as CSV
Disclaimer: This calculator is for informational purposes. Actual loan terms depend on your lender and creditworthiness. Consult your bank for accurate figures.