The Loan Calculator computes monthly installments using three methods: flat, annuity, and effective declining.
Compare total interest across all three methods at once. Also calculates borrowing capacity from your maximum monthly installment.
Disclaimer: Actual interest rates vary. Consult your financial institution.
Calculator information
📋 How to use this calculator
- Enter the loan amount (principal) in US dollars, e.g., $300,000 for a basic mortgage.
- Enter the annual interest rate in percent, such as 7.0% for a conventional 30-year mortgage.
- Enter the term in months (mortgage 60-360 months, personal loan 12-60 months, auto loan 36-72 months).
- Choose the interest method: Flat (level payment, higher total interest), Amortizing (level payment, principal portion grows over time), or Declining-Balance (payment decreases, lowest total interest).
- Press Calculate to see the monthly payment, total interest, and total payments under all three methods at once.
- Review the amortization table to see the principal vs. interest split each month. Tip: paying extra early in the term can dramatically reduce total interest on an amortizing loan.
🧮 Monthly Payment (Flat, Amortizing, Declining-Balance)
Flat: Payment = (P + (P * i * n)) / n; Amortizing: Payment = P * (i * (1+i)^n) / ((1+i)^n - 1); Declining: Payment_t = (P/n) + ((P - P_paid) * i)
- P = loan principal ($)
- i = monthly rate (annual rate / 12)
- n = term in months
- P_paid = total principal paid through month t-1
Flat-rate (add-on) interest is typically 50-80% more expensive in total than declining-balance interest for the same nominal rate and term.
💡 Worked example: $300,000 mortgage at 7.0% APR, 360 months (30 years), amortizing
Given:- P = $300,000
- Annual rate = 7.0% -> i = 0.5833% per month
- n = 360 months
Steps:- (1+i)^n = 1.005833^360 = 8.116
- Numerator = 0.005833 * 8.116 = 0.04734
- Denominator = 8.116 - 1 = 7.116
- Payment = $300,000 * (0.04734 / 7.116) = $1,995.91 per month
- Total payments = $1,995.91 * 360 = $718,527
- Total interest = $418,527
Result: Monthly payment $1,995.91; total interest over 30 years $418,527 (about 140% of principal). Consider a shorter term or extra principal payments to save substantially on interest.
❓ Frequently asked questions
Is flat-rate or declining-balance interest cheaper?
Declining-balance interest always produces less total interest than flat-rate interest at the same nominal rate. Example: a $50,000 personal loan at 12%/year for 36 months produces about $18,000 in interest at flat-rate, but only about $9,800 with a declining-balance method. Lenders sometimes quote 'add-on' or flat rates to look attractive, while the effective APR may be roughly twice as high.
What is an adjustable-rate mortgage and what are the risks?
An adjustable-rate mortgage (ARM) ties the interest rate to a reference index, such as SOFR or the U.S. Treasury yield, plus a margin. Risk: the monthly payment can rise sharply when the index moves up. Many ARMs are 5/1 or 7/1 hybrids - fixed for the first 5 or 7 years, then adjusting annually. When the Fed raised rates aggressively in 2022-2023, many ARM borrowers saw payments increase 15-25%.
What is a sensible debt-to-income (DTI) ratio?
The CFPB's 'qualified mortgage' rules generally cap back-end DTI (total monthly debt payments / gross monthly income) at 43%. Most lenders prefer 36% or lower. For mortgages, the conventional rule of thumb is the '28/36 rule': housing costs under 28% of gross income, total debt under 36%. Mortgage insurance, property taxes, and HOA fees should all be included when evaluating affordability.
Are there prepayment penalties?
Most US conventional mortgages and federally backed loans (FHA, VA, USDA) do not charge prepayment penalties. Some non-qualified mortgages and certain personal or auto loans may include a prepayment penalty of 1-3% within the first few years. Always read the loan note and Truth-in-Lending disclosure for any prepayment terms. Federal law (Dodd-Frank) restricts prepayment penalties on qualified mortgages.
What is the advantage of a fixed-rate mortgage over an ARM?
A fixed-rate mortgage locks in the same rate and payment for the entire term (typically 15 or 30 years), insulating you from interest rate increases. An ARM usually starts with a lower introductory rate but can rise after the initial fixed period. Fixed-rate loans are preferred when interest rates are low or you plan to stay in the home long-term; ARMs may make sense if you plan to sell or refinance within the introductory period.
📚 Sources & references
Last updated: May 11, 2026