INTEREST IN MORTGAGE

AND AMMORTIZATION
BUSINESS MATHEMATICS
 What is Interest?

 Interest– may be defined as n amount that is paid for the use of

another party`s money.

 Ifthe principal amount and interest rate, then the interest is computed
as,
I =rxP
Example 1: The principal amount of an investment is 50,000
php and the interest rate is 15%. What will be the interest?

 Solution
 Given: rate- 0.15 and P = 50,000
I =rxP
= (0.15)(50,000)
= 7,500 php.
Example 2: Mr. Mark invested 50,000php in an institution that offers
an interest rate of 3% per year How much will he earn in a year?

Given: r= 0.03 and P = 50,000

I =rxP
= (0.03)(50,000)
= 1,500 php

Therefore, Mr. Mark will earn 1,500php from his investment after a year.
 Example 3: Mr. Rome invested 8,000php in a certain
company. When his investment reached the maturity date,
he received a total amount of 9,000?

1. How much interest did he gain?

2. What was the interest rate?

 Solution:
Given: A= 9,000 and P = 8,000
Formula= I = A – P
I = 9,000 – 8,000
I = 1,000
Formula: r =
=
Therefore, the interest rate of his investment is 12.5%
 What is Mortgage?

 Isan agreement by which a debtor pays the lender for a certain

property over a period of time.
 It is also refer to the loan itself.
 Amortization – is a process of dividing the value of a loan by
paying a certain fixed amount periodically.
 This is the amount that you need to pay based on the agreed upon
schedule.
 Formula: M = C(cost) – D ( downpayment)
General Formula in Calculating the Periodic
payment for a Mortgage.

P – Principal Amount
r – interest rate
n- number of payment per year
t- total number of years during which the mortgage will be paid
 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 monthly payment.

Solution:
Given: P = 800,000, t = 10 years and r = 3%, n= 12
𝑊h𝑎𝑡 𝑤𝑖𝑙𝑙 𝑏𝑒 𝑡h𝑒 𝑡𝑜𝑡𝑎𝑙 𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑎𝑛𝑑 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑓𝑡𝑒𝑟 10 𝑦𝑒𝑎𝑟𝑠 ?

¿ 7,724.86 𝑥 120

¿ 926,983.20
𝐴=𝑃 +𝐼 → 𝐼= 𝐴− 𝑃
¿ 926,983.20 − 800,000
¿ 126,983.20
𝑃 𝑚=7,724.86
 Robert wants to purchase a car that costs 1,300,000. He will give a down payment of 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.
How much is his monthly amortization?

Solution:
Given: Cost- 1,300,000, down payment 300,000, t = 5 and n = 12
P = Cost – DP  1,300,000 – 300,00=1,000,000
𝑊h𝑎𝑡 𝑤𝑖𝑙𝑙𝑏𝑒 𝑡h𝑒𝑡𝑜𝑡𝑎𝑙𝑝𝑎𝑦𝑚𝑒𝑛𝑡 𝑎𝑛𝑑𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑓𝑡𝑒𝑟 5 𝑦𝑒𝑎𝑟𝑠?
¿ 20,037.95 𝑥 60

¿ 1,202,277

𝐴=𝑃 + 𝐼 → 𝐼 = 𝐴− 𝑃
¿ 1,202,277 −1,000,000

𝑃 𝑚=20,037.95 𝐼 =202,277
THANK YOU AND
GODBLESS