Solving Problems on Business and

Consumer Loans (Amortization and

Mortgage)
by CHED on January 13, 2017

lesson duration of 7 minutes

under General Mathematics

generated on January 13, 2017 at 08:28 am

Tags: Basic Concepts of Stocks and Bonds

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Generated: Jan 13,2017 04:28 PM

Solving Problems on Business and Consumer Loans (Amortization and

Mortgage) ( 7 mins )

Written By: CHED on May 28, 2016

Subjects: General Mathematics

Tags: Basic Concepts of Stocks and Bonds

Resources

n/a

Content Standard

The learner demonstrates understanding of basic concepts of business and consumer loans

Performance Standard

The learner is able to decide wisely on the appropriateness of business or consumer loan and its proper utilization.

Learning Competencies

The learner solves problems involving business and consumer loans (amortization, mortgage).

Introduction 1 mins

Discuss with the students past lesson on paying your loan with regular payments on regular intervals of time. Give
some examples on real life situation where they can apply this in business loans and consumer loans like car loan,
housing loan, SSS and GSIS salary loan, credit card cash loan and others. Tell the students that once they get a loan,
they should fulfill their obligation by paying regularly.

Discuss the following examples.

(a) Mr. Apolto decided to buy a house and lot for his family. The loan amounts to P2,500,000. He amortized the loan
by paying P23,000 monthly for 20 years.

(b) Ms. Salceda bought a car for P800,000. After deducting the downpayment, her total loan amounts to P750,000.
She amortized the loan by paying P18,000 monthly for 5 years.

(c) Mr. Francisco applied for a salary loan from his social security insurance. He got a P20,000 loan. To pay for this
loan, he has to pay P1,100 monthly for 2 years.

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Lesson Proper 1 mins

(a) Defonition of terms

Amortization Method - method of paying a loan (principal and interest) on installment basis, usually of equal
amounts at regular intervals
Mortgage - a loan, secured by a collateral, that the borrower is obliged to pay at specified terms.
Chattel Mortgage - a mortgage on a movable property
Collateral - assets used to secure the loan. It may be a real-estate or other investments
Outstanding Balance - any remaining debt at a specified time

(b) Discuss the basics of a mortgage loan to the students.

A mortgage is a business loan or a consumer loan that is secured with a collateral. Collaterals are assets that can
secure a loan. If a borrower cannot pay the loan, the lender has a right to the collateral. The most common collaterals
are real estate property. For business loans, equipment, furniture and vehicles may also be used as collaterals.
Usually, the loan is secured by the property bought. For example, if a house and lot is purchased, the purchased
house and lot will be used as a mortgaged property or a collateral. During the term of the loan, the mortgagor,
mortgagor, the
borrower in a mortgage, still has the right to possess and use the mortgaged property. In the event that the mortgagor
does not make regular payments on the mortgage, the mortgagee or the lender in a mortgage can repossess the
mortgaged property. The most common type of mortgage is the fixed-rate mortgage wherein the interest remains
constant throughout the term of the loan.

(c) Solve problems involving business or consumer loans

EXAMPLE 1. Mr. Garcia borrowed P1,000,000 for the expansion of his business. The effective rate of interest is 7%.
The loan is to be repaid in full after one year. How much is to be paid after one year?

An amount of P1,070,000 must be paid after one year

EXAMPLE 2. (Chattel mortgage). A person borrowed P1,200,000 for the purchase of a car. If his monthly payment is
P31,000 on a 5-year mortgage, find the total amount of interest.

Solution.

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The mortgage amount is P2,400,000.

EXAMPLE 3. If a house is sold for P3,000,000 and the bank requires 20% down payment, find the amount of the
mortgage.

The mortgage amount is P2,400,000.

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EXAMPLE 4. 4. Ms Rosal bought a car. After paying the downpayment, the amount of the loan is P400,000 with an
interest rate of 9% compounded monthly. The term of the loan is 3 years. How much is the monthly payment?

Solution.

The regular payment is P12,719.89.

(d) Discuss the outstanding balance of a loan.

Outstanding Balance

Recall that the outstanding balance of a loan is the amount of the loan at this time. One method to compute the
outstanding balance is to get the present value of all remaining payments. This method is called the prospective
method.

Time Diagram:

EXAMPLE 5. Mrs. Se borrowed some money from a bank that offers an interest rate of 12% compounded monthly.
His monthly amortization for 5 years is P11,122.22. How much is the outstanding balance after the 12th payment?

Solution.

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The outstanding balance is P422,354.73.

e) Discuss the basics of loan amortization (compute the interest and principal components of a loan.)

EXAMPLE 6. Mr. and Mrs. Banal purchased a house and lot worth P4,000,000. They paid a down payment of
P800,000. They plan to amortize the loan of P3,200,000 by paying monthly for 20 years. The interest rate is 12%
convertible monthly.

a. How much is the monthly payment?

b. What is the total interest paid?

c. What are the principal and interest components of the 51st payment?

Solution.

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There are 240 payments of P35,234.76. The total payment is 240 × P35, 234.76 = P8, 456, 342.40.

The principal is only P3,200,000.

Interest Amount = (Total Payments) ? (Principal)

= 8, 456, 342.40 ? 3, 200, 000 = 5, 256, 342.40

The interest amount is P5,256,342.40

Note:
Students may be surprised to learn that much of what is being paid is for the interest. This is particularly true
if a loan is being paid over a long period of time.

Find: principal and interest components of the 51st payment

The 51st payment of P35,234.76 is partly used to pay for the principal, and partly to pay for the interest.

Step 1: Get the outstanding balance after the 50th payment (the balance after the 50th payment is what the 51st

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payment will be for).

Since 50 payments have been paid already, there will be 190 remaining payments.

The outstanding balance after the 50th payment is:

Step 2: After the 50th payment, the outstanding balance is P2,991,477.63.

Since the interest rate per period is j = 0.01, then the remaining balance of P2,991,477.63 will be charged an interest
of The 51st payment of P35,234.76 will be used to pay for this interest. Thus, the interest component of the 51st
payment is P29,914.78.

Thus, for the 51st payment, the part that goes to pay the interest is P29,914.78 and the part that goes to pay the
principal is P5,319.98.

(f) Problem-based Approach and Collaborative Learning

Group the students into 5. Interview a real estate agent, vehicle dealer or someone who sells by installment. Get a
sample of the quotation for what they are selling. Make sure the following details will be reported to class:

i. Cash Value of the property

ii. Downpayment

iii. Mortgaged Amount

iv. Term of the Loan

v. Monthly Payment

vi. Total Interest

Seatwork 1 mins

Seatwork 1. A loan of P200,000 is to be repaid in full after 3 years. If the interest rate is 8% per annum. How much
should be paid after 3 years?

Answer: F = (1 + j)n = 100, 000, (1 + 0.08)3 = 251, 942.40

Seatwork 2. For a purchase of a house and lot worth P3,800,000, the bank requires 20% down payment, find the
mortgaged amount.

Answer: P3,040,000

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Seatwork 3.
3. A car dealer offers a 15% down payment for the purchase a car. How much is the mortgaged amount if
the cash value of the car is P1,500,000?

Answer: P1,275,000

Seatwork 4. If a condominium is purchased for P5,700,000 and the bank requires 30% down payment, how much is
the mortgaged amount?

Answer: P3,990,000

Seatwork 5. A family obtained a P1,000,000 mortgage. If the monthly payment is P38,000 for four years, how much is
the total interest paid?

Answer: P824,000

Seatwork 6. Mr. Canlapan obtained a 10-year mortgage for P4,200,000. If his monthly payment is P39,500 , how
much is the total interest?

Answer: P540,000

Seatwork 7. Mr. Ramos is considering to pay his outstanding balance after 3 years of payment. The original amount of
the loan is P100,000 payable annually in 5 years. If the interest rate is 10% per annum and the regular payment is
P26,379.75 annually, how much is the outstanding balance after the 3rd payment?

Seatwork 8. Ms. Saya got a business loan worth P900,000. She promised to pay the loan semi-annually in 3 years.
The semi-annual payment is P183,026.37 if money is worth 12% converted semi-annually. How much is the
outstanding balance after the first payment?

Seatwork 9. A consumer loan worth P30,000 is to be repaid in 12 months at 9% convertible monthly. How much is the
monthly payment?

Seatwork 10. A business loan worth P750,000 is to repaid in quarterly installment in 2 years. How much is the
quarterly payment if money is worth 8% converted quarterly?

Seatwork 11. A newly married couple decided to buy a brand new car. The net amount of the loan is P500,000. They
plan to amortize the loan in monthly installments for 3 years. If money is worth 12% convertible monthly,

(a) how much is the monthly installment?

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(b) How much is the outstanding balance after the second payment?

(c) How much of the third payment goes to pay the interest and the principal?

Seatwork 1 mins

Seatwork 1. A loan of P200,000 is to be repaid in full after 3 years. If the interest rate is 8% per annum. How much
should be paid after 3 years?

Answer: F = (1 + j)n = 100, 000, (1 + 0.08)3 = 251, 942.40

Seatwork 2. For a purchase of a house and lot worth P3,800,000, the bank requires 20% down payment, find the
mortgaged amount.

Answer: P3,040,000

Seatwork 3.
3. A car dealer offers a 15% down payment for the purchase a car. How much is the mortgaged amount if
the cash value of the car is P1,500,000?

Answer: P1,275,000

Seatwork 4. If a condominium is purchased for P5,700,000 and the bank requires 30% down payment, how much is
the mortgaged amount?

Answer: P3,990,000

Seatwork 5. A family obtained a P1,000,000 mortgage. If the monthly payment is P38,000 for four years, how much is
the total interest paid?

Answer: P824,000

Seatwork 6. Mr. Canlapan obtained a 10-year mortgage for P4,200,000. If his monthly payment is P39,500 , how
much is the total interest?

Answer: P540,000

Seatwork 7. Mr. Ramos is considering to pay his outstanding balance after 3 years of payment. The original amount of

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the loan is P100,000 payable annually in 5 years. If the interest rate is 10% per annum and the regular payment is
P26,379.75 annually, how much is the outstanding balance after the 3rd payment?

Seatwork 8. Ms. Saya got a business loan worth P900,000. She promised to pay the loan semi-annually in 3 years.
The semi-annual payment is P183,026.37 if money is worth 12% converted semi-annually. How much is the
outstanding balance after the first payment?

Seatwork 9. A consumer loan worth P30,000 is to be repaid in 12 months at 9% convertible monthly. How much is the
monthly payment?

Seatwork 10. A business loan worth P750,000 is to repaid in quarterly installment in 2 years. How much is the
quarterly payment if money is worth 8% converted quarterly?

Seatwork 11. A newly married couple decided to buy a brand new car. The net amount of the loan is P500,000. They
plan to amortize the loan in monthly installments for 3 years. If money is worth 12% convertible monthly,

(a) how much is the monthly installment?

(b) How much is the outstanding balance after the second payment?

(c) How much of the third payment goes to pay the interest and the principal?

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Seatwork 1 mins

Seatwork 1. A loan of P200,000 is to be repaid in full after 3 years. If the interest rate is 8% per annum. How much
should be paid after 3 years?

Answer: F = (1 + j)n = 100, 000, (1 + 0.08)3 = 251, 942.40

Seatwork 2. For a purchase of a house and lot worth P3,800,000, the bank requires 20% down payment, find the
mortgaged amount.

Answer: P3,040,000

Seatwork 3.
3. A car dealer offers a 15% down payment for the purchase a car. How much is the mortgaged amount if
the cash value of the car is P1,500,000?

Answer: P1,275,000

Seatwork 4. If a condominium is purchased for P5,700,000 and the bank requires 30% down payment, how much is
the mortgaged amount?

Answer: P3,990,000

Seatwork 5. A family obtained a P1,000,000 mortgage. If the monthly payment is P38,000 for four years, how much is
the total interest paid?

Answer: P824,000

Seatwork 6. Mr. Canlapan obtained a 10-year mortgage for P4,200,000. If his monthly payment is P39,500 , how
much is the total interest?

Answer: P540,000

Seatwork 7. Mr. Ramos is considering to pay his outstanding balance after 3 years of payment. The original amount of
the loan is P100,000 payable annually in 5 years. If the interest rate is 10% per annum and the regular payment is
P26,379.75 annually, how much is the outstanding balance after the 3rd payment?

Seatwork 8. Ms. Saya got a business loan worth P900,000. She promised to pay the loan semi-annually in 3 years.
The semi-annual payment is P183,026.37 if money is worth 12% converted semi-annually. How much is the
outstanding balance after the first payment?

Seatwork 9. A consumer loan worth P30,000 is to be repaid in 12 months at 9% convertible monthly. How much is the
monthly payment?

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Seatwork 10. A business loan worth P750,000 is to repaid in quarterly installment in 2 years. How much is the
quarterly payment if money is worth 8% converted quarterly?

Seatwork 11. A newly married couple decided to buy a brand new car. The net amount of the loan is P500,000. They
plan to amortize the loan in monthly installments for 3 years. If money is worth 12% convertible monthly,

(a) how much is the monthly installment?

(b) How much is the outstanding balance after the second payment?

(c) How much of the third payment goes to pay the interest and the principal?

Evaluation 1 mins

(a) Fill in the blank.

1. A ________ is a loan, secured by a collateral, that the borrower is obliged to pay at specified terms.
1. Answer: mortgage
2. _______ is a mortgage on a movable property.
1. Answer: chattel mortgage
3. A ________ is a mortgage with a fixed interest rate for its entire term.
1. Answer: fixed-rate mortgage
4. The ________ is the lender in a mortgage.
1. Answer: mortgagee
5. The ________ is the borrower in a mortgage.
1. Answer: mortgagor

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(b) Solve the following problems completely.

1. A business loan of 800,000 is to be repaid in full after 2 years. What is the amount to be paid if the effective
rate of interest is 8%?
1. Answer: F =P(1+j)n =800,000(1+0.08)2 =933,120
2. For the purchase of a farm worth P2,800,000, the bank requires 30% down payment, find the mortgaged
amount.
1. Answer: P1,960,000
3. If a condominium is purchased for P1,700,000 and the bank requires 25% down payment, how much is the
mortgaged amount?
1. Answer: P1,275,000
4. Mr. Sia got a P1,100,000 mortgage. If the monthly payment is P33,000 for five years, how much is the total
interest paid?
1. Answer: P880,000
5. Mr. Yuson obtained a 20-year mortgage for P2,200,000. If his monthly payment is P18,500 , how much is the
total interest?
1. Answer: P2,240,000

(c) Answer the following problems completely.

a. Mr. Abaya got a P700,000 loan for the expansion of his business payable monthly in 4 years. How much is the
monthly amortization if the interest rate is 12% compounded monthly?

b. A consumer loan of P300,000 is to be repaid quarterly for 5 years. If the interest rate is 10% converted quarterly,
How much is the quarterly payment?

c. A business loan of P650,000 is to be settled by paying P29,994.20 monthly in 2 years. If the interest rate is 10%
converted monthly, how much is the outstanding balance after 6 payments?

d. Ms. Sena got a P500,000 loan to be repaid quarterly in 5 years. The interest rate applied is 10% convertible
quarterly. The quarterly payment is solved as P32,073.56. How much is the outstanding balance after 2 years?

e. A business loan of P45,000 is given to Ms. Alfonso. The monthly payment for the loan amounts to P11,485.35 for 4
months. The interest rate used is 10% convertible monthly. How much is the outstanding balance after the first

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payment?

f. Mr. Lachica applied for a P100,000 loan. She plans to pay for this loan annually at 8% per annum for 5 years. The
annual payment is computed as P25,045.65.

A. How much is the outstanding balance after the fourth payment?

B. How much of the 5th payment goes to pay the interest and principal?

Evaluation 1 mins

(a) Fill in the blank.

1. A ________ is a loan, secured by a collateral, that the borrower is obliged to pay at specified terms.
1. Answer: mortgage
2. _______ is a mortgage on a movable property.
1. Answer: chattel mortgage
3. A ________ is a mortgage with a fixed interest rate for its entire term.
1. Answer: fixed-rate mortgage
4. The ________ is the lender in a mortgage.
1. Answer: mortgagee
5. The ________ is the borrower in a mortgage.
1. Answer: mortgagor

(b) Solve the following problems completely.

1. A business loan of 800,000 is to be repaid in full after 2 years. What is the amount to be paid if the effective
rate of interest is 8%?
1. Answer: F =P(1+j)n =800,000(1+0.08)2 =933,120
2. For the purchase of a farm worth P2,800,000, the bank requires 30% down payment, find the mortgaged
amount.
1. Answer: P1,960,000
3. If a condominium is purchased for P1,700,000 and the bank requires 25% down payment, how much is the
mortgaged amount?
1. Answer: P1,275,000
4. Mr. Sia got a P1,100,000 mortgage. If the monthly payment is P33,000 for five years, how much is the total
interest paid?

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1. Answer: P880,000
5. Mr. Yuson obtained a 20-year mortgage for P2,200,000. If his monthly payment is P18,500 , how much is the
total interest?
1. Answer: P2,240,000

(c) Answer the following problems completely.

a. Mr. Abaya got a P700,000 loan for the expansion of his business payable monthly in 4 years. How much is the
monthly amortization if the interest rate is 12% compounded monthly?

b. A consumer loan of P300,000 is to be repaid quarterly for 5 years. If the interest rate is 10% converted quarterly,
How much is the quarterly payment?

c. A business loan of P650,000 is to be settled by paying P29,994.20 monthly in 2 years. If the interest rate is 10%
converted monthly, how much is the outstanding balance after 6 payments?

d. Ms. Sena got a P500,000 loan to be repaid quarterly in 5 years. The interest rate applied is 10% convertible
quarterly. The quarterly payment is solved as P32,073.56. How much is the outstanding balance after 2 years?

e. A business loan of P45,000 is given to Ms. Alfonso. The monthly payment for the loan amounts to P11,485.35 for 4
months. The interest rate used is 10% convertible monthly. How much is the outstanding balance after the first
payment?

f. Mr. Lachica applied for a P100,000 loan. She plans to pay for this loan annually at 8% per annum for 5 years. The
annual payment is computed as P25,045.65.

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A. How much is the outstanding balance after the fourth payment?

B. How much of the 5th payment goes to pay the interest and principal?

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