Calculate periodic payments, total payout & interest earned
An annuity is a financial product that provides a series of equal payments at regular intervals over a specified period. It is commonly used in retirement planning, where a lump sum is converted into a steady income stream. Annuities can also describe loan repayment structures where fixed payments are made over time.
An ordinary annuity (or annuity immediate) makes payments at the end of each period — this is the most common type for loans and mortgages. An annuity due makes payments at the beginning of each period, which is typical for rent and lease agreements. Because each payment in an annuity due earns interest for one additional period, the periodic payment is slightly lower than for an ordinary annuity with the same terms.
For an ordinary annuity: PMT = PV × [r(1+r)^n] / [(1+r)^n - 1], where PV is the present value, r is the periodic interest rate, and n is the total number of payments. For an annuity due, the formula is adjusted by dividing by (1+r) to account for the earlier timing of payments.
Annuity calculations are essential for retirement planning, mortgage analysis, lease evaluations, and insurance product comparisons. Understanding how payment frequency and interest rates affect your periodic income helps you make better financial decisions.