A conventional loan is a mortgage that is not backed by a government agency like the FHA, VA, or USDA. These loans are a popular choice for many homebuyers because they often offer more flexibility in terms of loan limits, eligibility, and can be conforming (meeting Fannie Mae and Freddie Mac guidelines) or non-conforming (jumbo loans).
The monthly payment for a conventional loan, often referred to as a Principal and Interest (P&I) payment, is calculated using an amortizing loan formula. This formula determines the fixed periodic payment required to fully pay off the loan over its term, with interest, by the end of the loan period.
The Math Behind the Calculation
The standard formula for calculating the monthly payment (M) of an amortizing loan is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount (the amount you borrow).
i = Monthly interest rate. This is the annual interest rate divided by 12. For example, if the annual rate is 5%, the monthly rate (i) is 0.05 / 12 = 0.00416667.
n = Total number of payments. This is the loan term in years multiplied by 12. For a 30-year loan, n = 30 * 12 = 360.
How This Calculator Works
This calculator takes your input for the Loan Amount, the Annual Interest Rate, and the Loan Term in Years. It then applies the formula above to compute your estimated monthly Principal and Interest payment. The result displayed is for P&I only and does not include other costs like property taxes, homeowners insurance, or Private Mortgage Insurance (PMI), which are often part of your total monthly housing payment (escrow).
Key Considerations for Conventional Loans:
Credit Score: Conventional loans typically require a good to excellent credit score.
Down Payment: While 20% down is ideal to avoid PMI, many conventional loans allow for down payments as low as 3% or 5%.
Private Mortgage Insurance (PMI): If your down payment is less than 20% on a conventional loan, you will likely need to pay PMI, which protects the lender. This cost is not included in the P&I calculation.
Conforming vs. Non-Conforming: Conforming loans meet the dollar limits set by Fannie Mae and Freddie Mac, while non-conforming (jumbo) loans exceed these limits.
Use this calculator to get a quick estimate of your P&I payments and better understand the financial commitment of taking out a conventional loan for your home purchase.
function calculateLoanPayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
var monthlyPaymentDisplay = resultDiv.querySelector(".monthly-payment");
// Clear previous results and hide the div
resultDiv.style.display = "none";
monthlyPaymentDisplay.textContent = "$0.00";
// Validate inputs
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid Loan Amount.");
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid Annual Interest Rate.");
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter a valid Loan Term in Years.");
return;
}
// Convert annual interest rate to monthly interest rate
var monthlyInterestRate = annualInterestRate / 100 / 12;
// Calculate the total number of payments
var numberOfPayments = loanTermYears * 12;
var monthlyPayment = 0;
// Handle the edge case where interest rate is 0
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / numberOfPayments;
} else {
// Calculate monthly payment using the amortization formula
var numerator = monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments);
var denominator = Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1;
monthlyPayment = loanAmount * (numerator / denominator);
}
// Format the monthly payment to two decimal places
var formattedMonthlyPayment = "$" + monthlyPayment.toFixed(2);
// Display the result
monthlyPaymentDisplay.textContent = formattedMonthlyPayment;
resultDiv.style.display = "block";
}