A Fixed-Rate Loan Calculator

By Stock Research Pro • November 13th, 2009

Fixed-rate loans are loans in the borrower pays equal amounts to the lender for a set number of periods until the loan (plus interest) are paid back in full. Under a fixed-rate loan, these payments remain consistent regardless of changes in interest rates. While there are a number of loan options available, a fixed-rate offers a good way for the borrower to plan for payments for the entire life of the loan. Perhaps the best example of this type of loan is a fixed-rate mortgage.


Variable-Interest Loans

Unlike a fixed-rate loan, a variable rate loan (also known as a “floating” or “adjustable” rate) does not offer a set interest rate over the life of the loan. Instead, the rate charged on the outstanding balance will vary as market interest rates change. As a result, payments made to the lender can move up and down over time.


Fixed-Rate v. Variable-Rate Loans

Choosing between a fixed-rate and a variable-rate loan is highly dependent on prevailing market conditions. If interest rates are expected to decrease over time, a variable-rate loan may be preferable. If, on the other hand, rates are currently low and expected to rise over time, the borrower may be better off “locking in” to the existing low rates.


Calculate a Fixed-Rate Payment

The formula for calculating a fixed-rate payment can be written as:


Payment = (r / (1-(1+r) ^-n) * Loan

Where:

r = interest rate per period
n = number of periods for the loan


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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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