Amortization and Mortgage

• What is the definition of amortization?

  Gradual extinction of loan through payments
• Why is an amortization schedule important?

  It shows principal and interest in payments
• What is the amortization method?

  Paying a loan in equal installments
• What does an amortization schedule display?

  Periodic loan payments and their components
• What is a mortgage?

  A loan secured by collateral
• What is a chattel mortgage?

  A mortgage on movable property
• What is collateral?

  Assets used to secure a loan
• What is the outstanding balance?

  Remaining debt at a specified time
• What is the formula for regular payment?

  $R =$$\frac{PV(i)}{1 - (1+i)^{-n}}$
• What is the formula for outstanding balance after the mth payment?

  $PV_{mth} =$$R \cdot \frac{1 - (1+i)^{-(n-m)}}{i}$
• How much did Eva obtain as a loan for her business?

  Php 50,000
• What is the interest rate for Eva's loan?

  10% interest compounded semi-annually
• How often does Eva make her loan payments?

  Every six months
• For how long does Eva need to repay her loan?

  3 years
• What is the first step in solving Eva's loan problem?

  Find the periodic or regular payment
• What is the second step in solving Eva's loan problem?

  Calculate interest paid on the 1st payment
• What is the third step in solving Eva's loan problem?

  Calculate repayment to principal on the 1st payment
• What is the fourth step in solving Eva's loan problem?

  Calculate outstanding balance after the 4th payment
• What is the final step in solving Eva's loan problem?

  Construct the amortization schedule
• What are the key components of an amortization schedule?

  • Periodic payment amounts
  • Principal portion of each payment
  • Interest portion of each payment
  • Remaining balance after each payment
• What are the differences between a mortgage and a chattel mortgage?

  • Mortgage: Secured by real estate
  • Chattel mortgage: Secured by movable property
  • Both involve collateral for loans
• What are the steps to solve a consumer loan problem?

  1. Find the periodic payment
  2. Calculate interest on the first payment
  3. Determine principal repayment on the first payment
  4. Calculate outstanding balance after specified payments
  5. Construct the amortization schedule