LESSON 5:

MORTGAGE AND
AMORTIZATION
Learning Objective:
• Illustrate how interest is computed
and applied on mortgage,
amortization, services/utilities,
deposits, and loans
Review:
I=A–P
𝑰
r=
𝑷
I = Prt
A = P(1+rt)
Review:
𝒓 nt
At = P(1 + )
𝒏
Definitions:
• an agreement by which a debtor pays the
lender (usually a financial institution like a
bank) for a certain property over a period of
time
• amount that you need to pay based on the
agreed upon schedule, or on a monthly
basis
• sometimes called the principal amount of
the loan
Ex.1] Determining the Monthly Payment for a Mortgage
Suppose you want to buy a house that costs
₱1,000,000. You give a down payment of ₱200,000, and
then you loan the remaining ₱800,000 from a bank. Your
agreement with the bank is that you will pay for the
mortgage on a monthly basis for 10 years and that the
bank will charge a 3% interest rate, compounded monthly,
on your loan. Determine the amount of your monthly
payment.
Ex.2] Problem Solving Involving Interest
Applied on a Mortgage
Andy wants to purchase a car that costs
₱300,000, and then he will loan the balance
from a bank that charges a 7.5% interest rate,
compounded monthly. He also agreed to pay
the bank monthly for 5 years.
1. How much is his monthly amortization?
2. How much is the total interest on his loan?
Ex.3] Problem Solving Involving Interest
Applied on a Mortgage
Suppose you are planning to apply for a
housing loan. The lender offer different
interest rates that reflect the differences in
terms of the risks of shorter-term and longer-
term loans. The following are the options that
were given to you:
Option A: The mortgage will be paid on a
monthly basis for 15 years at an interest rate
of 6.25%, compounded monthly.
Option B: The mortgage will be paid on a
monthly basis for 30 years at an interest rate
of 6.75%, compounded monthly.
If you plan to borrow ₱2,400,000, how
much will be your monthly amortization in
each option?
Thank you.