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Mortgage and Amortization: Business Mathematics
Mortgage and Amortization: Business Mathematics
Amortization
Business Mathematics
Periodic Payment for a Mortgage
𝑗
𝑃
𝑚
R = −𝑚𝑡
𝑗
1− 1+
𝑚
R= Amortization
P = Principal
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. t = 10 years
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.
I=A–P
I= 1,202,277 – 1,000,000.
= 202,277.
Thus, the total interest on her loan is Php 202,277.
Exercises
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.
Exercises