Mortgage and

Amortization
Business Mathematics
Periodic Payment for a Mortgage
𝑗
𝑃
𝑚
R = −𝑚𝑡
𝑗
1− 1+
𝑚
R= Amortization/ Periodic Payments
P = Principal/ Loaned Amount
n=mt=number of payments per year
t=number of years
j=interest rate per year
m=number of times interest rate is compounded per year
Determining the Monthly Payment for a Mortgage
 Suppose you want to buy a house that costs Php 1,000,000. You give a
downpayment of Php 200,000, and then you loan the remaining Php
800,000. from a bank. Your agreement with the bank is that you will
pay for the mortgage on a monthly basis and that the bank will charge
a 3% interest rate, compounded monthly , on your loan. Determine
the amount of your monthly payment.
0.03
800000
R = = 7,724.86
12
0.03 −12(10)
1− 1+
12
 Therefore, you need to pay a monthly amortization of
Php 7,724.86 for 10 years to fully pay the mortgage.
Problem Solving Involving Interest
Applied on a Mortgage
 Carla wants to purchase a car that costs Php1,300,000. She will give a down
payment of Php 300,000. and then she will loan the balance from a bank that
charges a 7.5 % interest rate, compounded monthly. She also agreed to pay
the bank monthly for 5 years.
 1. How much is her monthly amortization?
0.075
1000000
R = = 20,037.95
12
0.075 −12(5)
1− 1+
12
 Therefore, Carla needs to pay a monthly amortization of
 Php 20, 037.95 for 5 years to fully pay the mortgage.
Problem Solving Involving Interest
Applied on a Mortgage
 2. How much is the total interest on her loan
 A = mtR
 A = (12)(5)(20,037.95)= 1,202,277.

 I=A–P
 I= 1,202,277 – 1,000,000.
 = 202,277.
 Thus, the total interest on her loan is Php 202,277.
Exercises

 1. A car costs Php 1, 4000,000. Suppose a man gives a down payment of

Php 400,000. for the car , and then loaned the balance from a bank. The
bank charges a 5% interest rate compounded monthly, on the loan, which he will
pay monthly for 10 years.

a. How much will be his monthly amortization?

b. How much will be the total interest on this loan?

Exercises

2. Determine the quarterly amortization for a 30-year mortgage of Php 6,000,000

at a 5% interest rate compounded monthly. Then compute for the total
interest on this loan?

3. Determine the monthly amortization for a 5 -year car loan worth Php 880,000
at 5.5% interest rate compounded monthly. Then compute for A) the total
interest of the loan.
B. Compute for the total interest of the loan.