1. What is the PMT Equation?

The PMT (Payment) equation calculates the fixed monthly payment required to pay off a loan over a specified period, including both principal and interest components. It's commonly used in seller financing arrangements.

2. How Does the Calculator Work?

The calculator uses the PMT equation:

Where:

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

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

3. Importance of PMT Calculation

Details: Accurate PMT calculation is crucial for structuring seller financing deals, ensuring affordability for buyers, and proper financial planning for both parties.

4. Using the Calculator

Tips: Enter principal in dollars, monthly interest rate as a decimal (e.g., 0.05 for 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 traditional bank financing.

Q2: How is monthly interest rate calculated from annual rate?
A: Divide the annual interest rate by 12 (months). For example, 12% annual = 1% monthly (0.01).

Q3: Does this calculation include taxes and insurance?
A: No, this calculates only principal and interest. Taxes and insurance would be additional costs.

Q4: What happens if I make extra payments?
A: Extra payments reduce the principal faster, potentially shortening the loan term and reducing total interest paid.

Q5: Are there any prepayment penalties in seller financing?
A: This depends on the specific terms negotiated between buyer and seller in the financing agreement.