How do you compute the monthly payment on a loan whose interest compounds monthly?

Question

If, for example, you have a 5 year loan for $100,000 at 10% interest, what would your payment be?

The specific formula, using the information from the above example, along with the generic formula, would be helpful...

Answer 1

First you need to convert the yearly interest rate to a monthly rate by dividing by 12(and convert it to decimal.

so for 10% becomes 10%/12 = 0.833% =0.008333..

p = principle (100000 in your example)
n = number of payments(60 in your example)

monthly payment =r*p/(1 -(1+r)^(-n) )

In your example the monthly payment would be $2124.70

Answer 2

The specific formula involves exponential functions and is messy to do without a calculator or computer.

There are on-line payment calculators, see mortgages.interest.com

Answer 3

The last time i actually saw the formula, I was in school. Use a finance calculator