How do you calculate the cost per $1000 for a loan, such as for a rate of 4.75%?

1 Answer

The answer to the question you pose **depends **on what tpye of loan you seek. Interest only, or fully amortized. Here are the formulas for both, although you will probably want to use an amortization calculator to calculate fully amortized payments.

Interest Only: Take the loan (1,000) and your interest rate 4.75% (.0475) and multiply them together (1,000 X .0475 = $47.50) Divide by the number of payments to be made (12 payments in a year) 47.50/12 = $3.96 a month. You can apply this formula to any loan amount and rate of interest charged. Recognize the result will be a yearly total, divide according to payments to complete the math.

Fully amortized: To calculate an amortized payment you will need an additional figure - term. The term represents a final point in time in which the loan will be fully satisified. A 30 year fixed is a 30 year term, or 360 months, a 15 year fixed is a 15 year term, or 180 months. In total there are four variables in this equation: P - principle amount borrowed, A - the periodic payment, R - rate of interest charged, N - number of payments. Apply any three of these answers into this equation and you can solve for the fourth.

For those that are not mathematically inclined you can find an amortizing calculator at any office supply store, online calculators offer simple solutions as well.