1. Standard Reducing Balance Amortization Formula

For standard amortizing loans (such as home mortgages, vehicle loans, and personal installment credit), the periodic payment M is calculated using the annuity formula:

M = P × [ r(1 + r)^n ] / [ (1 + r)^n – 1 ]

Where:

  • P: Principal loan amount borrowed.
  • r: Periodic interest rate (Annual Nominal Rate ÷ Number of payment periods per year).
  • n: Total number of payment periods (e.g., 3 years monthly = 36 periods).

2. Simple Flat Interest Formula

For simple flat interest rate financing (often quoted for consumer electronics and motorcycle loans):

Total Interest = P × Annual Flat Rate × Duration (Years)
Monthly Installment = (P + Total Interest) ÷ Total Months

3. Debt-to-Income (DTI) Ratio

Debt-to-Income percentage evaluates recurring monthly debt obligations against gross income:

DTI (%) = (Total Monthly Debt Obligations ÷ Gross Monthly Income) × 100

4. Compound Interest & Future Value

For recurring monthly savings growth compounding monthly:

FV = P(1 + r/n)^(nt) + PMT × [ ((1 + r/n)^(nt) - 1) / (r/n) ]