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Manvir Hothi, B.

Comm 1
How to: Calculate a Mortgage – Example
Scenario:
You are planning to purchase a house which will cost you $330,000. You
plan on taking a 25-year mortgage with an annual interest rate of 4.25%. Payments
will be made monthly.

Step 1: State the Given
Initial loan
Mortgage term
Annual rate

330,000
25
4.25%

Monthly payment

Monthly rate (
No. of periods (
PVAF

0.35%
300
184.59

$1,787.74

Where:
Monthly Rate
No. of periods
PVAF

Annual rate ÷ 12 months of a year
Mortgage term X 12 months of a year
Present Value of an Annuity Factor: Current value of a set of cash
flows in the future. The equation is as follows:
(

Monthly payment

)

(

Initial loan ÷ PVAF

Step 2: Create a Mortgage Amortization Schedule
The following table portrays the first three years (36 months) of the mortgage amortization
schedule.
Year
1
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2

Month
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

Initial loan
330,000.00
329,381.01
328,759.84
328,136.46
327,510.87
326,883.07
326,253.05
325,620.79
324,986.29
324,349.55
323,710.55
323,069.29
322,425.76
321,779.95
321,131.85
320,481.46

Payment
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74

Interest
1,168.75
1,166.56
1,164.36
1,162.15
1,159.93
1,157.71
1,155.48
1,153.24
1,150.99
1,148.74
1,146.47
1,144.20
1,141.92
1,139.64
1,137.34
1,135.04

Principal
618.99
621.18
623.38
625.59
627.80
630.02
632.26
634.50
636.74
639.00
641.26
643.53
645.81
648.10
650.39
652.70

End loan
329,381.01
328,759.84
328,136.46
327,510.87
326,883.07
326,253.05
325,620.79
324,986.29
324,349.55
323,710.55
323,069.29
322,425.76
321,779.95
321,131.85
320,481.46
319,828.76

% Principal
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.35
0.36
0.36
0.36
0.36
0.36
0.36
0.36
0.37

Manvir Hothi, B.Comm 2
How to: Calculate a Mortgage – Example
Year
2
2
2
2
2
2
2
2
3
3
3
3
3
3
3
3
3
3
3
3

Month
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36

Initial loan
319,828.76
319,173.75
318,516.42
317,856.77
317,194.77
316,530.44
315,863.75
315,194.69
314,523.27
313,849.47
313,173.29
312,494.71
311,813.72
311,130.33
310,444.51
309,756.27
309,065.59
308,372.46
307,676.87
306,978.83

Payment
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74
1,787.74

Interest
1,132.73
1,130.41
1,128.08
1,125.74
1,123.40
1,121.05
1,118.68
1,116.31
1,113.94
1,111.55
1,109.16
1,106.75
1,104.34
1,101.92
1,099.49
1,097.05
1,094.61
1,092.15
1,089.69
1,087.22

Principal
655.01
657.33
659.66
661.99
664.34
666.69
669.05
671.42
673.80
676.19
678.58
680.98
683.40
685.82
688.24
690.68
693.13
695.58
698.05
700.52

End loan
319,173.75
318,516.42
317,856.77
317,194.77
316,530.44
315,863.75
315,194.69
314,523.27
313,849.47
313,173.29
312,494.71
311,813.72
311,130.33
310,444.51
309,756.27
309,065.59
308,372.46
307,676.87
306,978.83
306,278.31

% Principal
0.37
0.37
0.37
0.37
0.37
0.37
0.37
0.38
0.38
0.38
0.38
0.38
0.38
0.38
0.38
0.39
0.39
0.39
0.39
0.39

Where:
Initial loan
Payment
Interest
Principal
End loan
% Principal

Beginning with the initial loan of $330,000, the ‘End loan’ is carried forward
as ‘Initial loan’ in the subsequent months
The payment of $1,787.74 is constant throughout the term of the mortgage
Initial loan for each month X Monthly rate (
The amount still owed on the mortgage, calculated as Payment less Interest
Initial loan – Principal
Principal ÷ Payment; at the end of the term, you will have a % Principal of
1.00

Step 3: Draw a ‘Data Table’ to Create Different Payment Scenarios
1787.74

20 yrs.

21 yrs.

22 yrs.

23 yrs.

24 yrs.

25 yrs.

3.00%
3.50%
4.00%
4.25%
4.50%
4.75%
5.00%

1830.17
1913.87
1999.74
2043.47
2087.74
2132.54
2177.85

1766.64
1851.03
1937.69
1981.86
2026.59
2071.86
2117.67

1709.06
1794.14
1881.60
1926.20
1971.37
2017.12
2063.43

1656.65
1742.44
1830.68
1875.71
1921.33
1967.54
2014.34

1608.78
1695.26
1784.28
1829.73
1875.80
1922.48
1969.76

1564.90
1652.06
1741.86
1787.74
1834.25
1881.39
1929.15