HOME OWNERSHIP

If an individual purchases a home, he generally makes a down payment and

finances the remaining balance with a loan obtained through a bank or financial
institution. The amount that is borrowed to purchase a home and other real
estate property are called mortgage. It is the difference between the selling price
and down payment. The borrower is usually the owner of the property and is
referred to as the mortgagor and the lender is mortgagee.
Mortgage maybe for as long as 30 years which maybe acquired thru private
financial institutions or thru Pag-ibig Housing loans. In the mortgage contract, the
property owner grants the lender the legal right to take over the said property
should the borrower default of the repayment on the loan. When the last
payment is made on the loan, does the lender turns over the title, or proof of
ownership to the borrower.
Example 1: The purchase price of a home in a subdivision in Cebu City is
P4,200,000. A down payment of 20% is made and secures a loan on the remaining
balance for 25 years and at annual interest rate of 6%. Find (a) the monthly
mortgage payment, (b) the total payment over the life of the loan, (c) the amount
of interest paid on the loan over the 25 years.
Solution:
Given: Selling price = P4,200,000
t = 25 years m = 12
r = 6% = 0.06 n = tm = 25(12) = 300
i = 5 ÷ m = 0.06/12 = 0.005
Step 1: Compute for the down payment.

Down Payment = Selling price x Rate of Down payment

Down Payment = 4,200,000 x 0.20 = P840,000

Step 2: Compute for the mortgage.

Mortgage = Selling price – Down payment

Mortgage = 4,200,000 – 840,000 = P3,360,000
Step 3: Compute for the monthly mortgage payment.

𝐴𝑖
R=
1−(1+𝑖)−𝑛
(3,360,000)(0.05)
R= = 21,648.53
1−(1+0.005)−300

The monthly mortgage is P21,648.53.

Step 4: Compute for the total mortgage payments.

Total Mortgage payments = Monthly payments x No. of Monthly payments

Total Mortgage payments = 21,648.53 x 300 = P6,494,559

Step 5: Compute for the amount of interest paid.

Interest = Total Mortgage payments – Amount of Mortgage

Interest = 6,494,559 – 3,360,000 = P3,134,559

The amount of interest paid over the life of the loans is P3,134,559.

Example 2: Ms. Molina has a monthly payment of P12,700 on a 20-year loan at

annual interest rate of 5.7%. After making payments for 15 years, she decided to
sell the house. What is the payoff for the mortgage?

Solution:
Let R = P12,700 t1 = 5 years (remaining years
t = 20 years n = t1m = 5(12) = 60
r = 5.7% = 0.057 I = 5/m = 0.057/12 = 0.00475
m = 12

We will apply the APR loan payoff formula. Ms. Molina had made payment for 15
years or 1180 months. There are 60 unpaid or remaining payment, n = 60.

1−(1+𝑖)−𝑛
A=R[ ]
𝑖
 1−(1+0.00475)−60
A=R[ ] = P661.678.45
0.00475

The loan payoff is P661,678.45.