Business Math

Quarter 2 – Week 4: Interest

on Mortgage, Amortization,
Services, Utilities, Deposits,
and Loans
 What’s In

DIRECTIONS: On a separate sheet of paper, write your answers to the questions

below. Please do not write anything on the module.

Complete the following table showing the balance of your account using
compound interest.

Compound Maturity
Principal (P) Rate (r) Time (t)
Interest (Ic) Value
20,000 6% 3 3,820.32 (1)

3,000 5% 6 (2) 4,020.29

(3) 1.1% 6 12,706.35 200, 000

10,000 0.5% 12 (4) 10, 616.78

10,000 2% 5 1,048.96 (5)

What is It

A MORTGAGE is a business loan or consumer loan that is secured with a

collateral. It was derived from a French law term used in during middle age which
means “death pledge’ meaning that the pledge ends (dies) when the total debt is paid
or when the property is foreclosed.

Collateral is required so that when a borrower cannot pay the loan, the lender
has the right to the collateral. For business loan the common collateral are the real
estate assets such as land, building, machineries and equipment. It is also a
common practice for a purchase house to acquire a mortgage and use the house
itself as a collateral.

During the time of the mortgage the borrower can still use the house but in
case that they failed to pay regularly the lender can repossess the said property.

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• AMORTIZATION METHOD: A method of paying a loan which is the principal plus
interest on instalment basis, usually of equal amounts at regular intervals. This
is use to lower the current balance on a loan that the borrower can easily pay it
regularly for a long period of time.

• TERM OF LOAN: The time to pay the entire loan.

• CHATTEL MORTGAGE: A mortgage on a movable property it could be a boat,

vehicle, home appliances, jewelry, gadgets and other financial instruments like
stocks or bonds.

• COLLATERAL: This is the asset used to secure the loan that can be forfeited in
case of default. It may be a real-estate or other investments
• OUTSTANDING BALANCE: Refers to the unpaid interest-bearing balance of a
loan.
• PROSPECTIVE METHOD: One of the methods to compute the outstanding
balance by determining the present value of all the remaining payments.
• MORTGAGEE: The lender in the mortgage.

• MORTGAGOR: The borrower in the mortgage.

EXAMPLE 1

The Super Will company wanted to branch out on disinfecting materials so

they borrowed Php 500,000 from a bank using his building as a mortgage. The rate
of interest is 12% and to be repaid in full after a year. How much is to be paid after
one year.

Solution: Principal (P) = Php 500,000

Rate (j) = 0.12

Time (n) =1

F = P + (1 + j)ⁿ = Php 500,000 + (1 + 0.12)¹

= Php 560,000

The amount of Php 560,000 should be paid after a year.

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 EXAMPLE 2

Mr. Nuguid borrowed from a bank for the purchase of his L300 van worth Php
800,000 that he will use in his business. He is to pay the bank the amount of Php
15,000 monthly regularly within 5 years. How much is the total interest?

Solution: Principal (P) = Php 800,000

Monthly Payment (A) = Php 15,000

Time (n) = 5 years x 12months = 60

Future Value (F) =Px n

= Php 15,000 x (5 x 12)

= Php 900,000

Total Interest =F– P

= Php 900,000 – Php 800,000

= Php 100,000

The total interest in 5 years in Php 100,000.

EXAMPLE 3

Mr. Magtangi bought a tractor for his farm. The price of the tractor is Php
400,000 after paying for its down payment. If the interest rate is 9% compounded
monthly for is 3 years, how much will be the monthly payment?

Solution: Principal (P) = Php 400,000

i¹² = 0 .09

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 j = 0.09 ÷ 12 = 0 .0075

n = 36

P 400,000
Regular Payment (R): R= 1−(1+j)ˉⁿ = 1−(1+0.0075)ˉ³⁶
j 0.0075

R = 12,719.81

Hence, monthly instalment will be Php 12,719.81.

EXAMPLE 4

Ms. Cardino borrowed money from a bank and used her house as a collateral.
She will have a monthly amortization of 11,122.22 for 5 years. This was computed
based on an interest rate of 12%. How much is the outstanding balance after 2
years?

Solution: R = Php 11,122.22

i¹² = 0 .12

j = 0.12 ÷ 12 = 0 .001

k = 12 (number of payments paid)

n–k = 60 (total no. of payments) – 12 (No. of mos. Paid)

= 48

Find the Present Value of 48 future payments:

1−( 1+j )ˉⁿˉᴷ 1−( 1.01 )ˉ⁴⁸

Bₖ = R[ ] = 11,122.00 [ ] = 422,354.73
j .01

Hence, the outstanding balance after 12 payments is Php 422, 354.73

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 EXAMPLE 5

Miss Rocha decided to pay all of her debts because she plans to migrate in the
USA. Her house is still under mortgage after 6 years of paying it. The original
amount of loan is Php 500,000 with 10% interest per annum and to be paid within
10 years. She was paying the amount of Php 81,372.70 for 6 years. How much should
she prepare for the remaining 4 years outstanding balance?

Solution: P = 500,000.00

R = 81,372.70

j = 0.10

n = 10

k = 6 (number of payments paid)

n–k = 10 (total no. of payments) – 6 (No. of mos. Paid)

=4

Find the Present Value of 4 future payments:

1−( 1+j )ˉⁿˉᴷ 1−( 1+.10 )ˉ⁴

Bₖ = R[ ] = 81,372.70[ ] = 257,940.51
j 0.10

Hence, she should prepare the amount of Php 257,940.51 to pay the
bank.

EXAMPLE 6

Mr. Moreno’s house was mortgage for Php 200,000.00 with a 6% of interest to
be paid in 30 years. What is the amount of interest after a year?

Solution: P = Php 200,000

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 i = 0.06

Note: If the term of the mortgage is not stated it will be considered annually. Since
the problem is just asking for the first year interest the term of the mortgage will
not be used.

R =Px i

= Php 200,000 x 0.06

=12,000

Hence, the interest to be paid is Php 12,000.00.

EXAMPLE 7

Ms. Rosal bought a house after getting tired of paying rents. After paying the
down payment, the amount of the loan is Php 400,000 with an interest rate of 9%
compounded monthly. The term of the loan is 3 years. How much is the monthly
payment?

Solution: P = Php 400, 000

i¹² = 0.09

j = i¹² ÷ 12 = 0.09 ÷ 12 = 0.0075

n = 36

P 400,000
R = 1−(1+j)ˉⁿ = 1−(1+0.0075)ˉ³⁶ = 12, 719.89
[ ] [ ]
j 0.0075

Hence, the monthly amortization is Php = 12, 719.89.

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 EXAMPLE 8

Rosano’s Mdse. is considering to pay his outstanding balance at the bank

when their financial situation got better. The Principal is Php 100,000.00 with a
10% interest compounded annually payable in 5 years. They regularly paid Php
26,379.75 for 3 consecutive years. How much is the loan balance remaining?

Solution: P = Php100,000

R = Php 26,379.75

j = 0.10

k = 3 (number of payments paid)

n–k = 5 (total no. of payments) – 3(No. of mos. Paid)

=2

1−( 1+j )ˉⁿˉᴷ 1−( 1+0.10 )ˉ2

Bₖ = R [ ] = 26,379.75 [ ]= 45,783.04
j 0.10

Hence, the balance remaining is Php 45,783.04.

AMORTIZATION TABLE

STEPS ON HOW TO MAKE AN AMORTIZATION TABLE

1. Create a 5-column table for Time, Total Payment, Interest paid, Principal Paid
and Ending balance consecutively.

2. Write on the time column the year or month of payment. Write the amount of
amortization paid on the Total Payment column, depending on how many
payments are needed. In this example it requires 5 so write Php 26,379.75 five
times

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3. Multiply the interest rate on the loan by the remaining loan balance. In the first
payment is the original amount, then write the amount on the interest paid
columns. In this example is Php 100,000 that charge 10% interest so Php
100,000 times 10% is Php 10,000.

4. Subtract the payment amount from the interest paid and write the difference in
the principal paid column. In the example is Php 26,379.75 minus Php 10,000 is
equal to Php 16,379.75.

5. Subtract the last ending balance by the principal and put the result in the ending
balance column. Repeat these steps until the ending balance become zero.

Total Interest Principal Ending

Month
Payment Paid Paid Balance

0 100,000.00

1 26,379.75 10,000.00 16,379.75 83,620.25

2 26,379.75 8,362.03 18,017.73 65,602.53

3 26,379.75 6,560.25 19,819.50 45,783.03

4 26,379.75 4,578.30 21,801.45 23,981.58

5 26,379.75 2,398.16 23,981.59 -

That’s it!

We’re done discussing the profit and loss and how

we will be able to identify and compute them.

On the next page, activities are waiting for you to

answer excellently. What are waiting for? Come on!

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 What I Can Do

DIRECTIONS: On a separate sheet of paper, make a schedule of amortization with

the given problem.

Ms. Ronsairo made a Php 500,000.00 loan from the bank to using her house
as a collateral. She needs it to inject some capital in her on-line business because
she suffered losses during Community quarantine due to COVID-19 outbreak. She
must pay the said amount semi-annually for 10 years with a 10 % interest. The
bank required her to pay 81,372.00 annually.

Total Interest Principal Ending

Month
Payment Paid Paid Balance

0 500,000.00

1 81,372.70 31,372.70 468,627.30

2 81,372.70 46,862.73 434,117.33

3 81,372.70 37,960.97 396,156.36

4 81,372.70 39,615.64 41,757.06

5 81,372.70 45,932.77 308,466.53

6 81,372.70 30,846.65 257,940.48

7 81,372.70 25,794.05 55,578.65 202,361.83

8 81,372.70 61,136.52

9 81,372.70 14,122.53 73,975.14

10 81,372.70 7,397.51 0.04

Great job!

Now, let’s us see whether you really learned

something from our discussion by taking this evaluation.

Good luck!

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 Additional Activities

DIRECTIONS: On a separate sheet of paper, copy the paragraph and fill-in the gaps.

A debt of Php 10,000 is amortized by making equal payments at the end of

every six months for three years, and interest is 6% compounded semi-annually with
an amortization of Php 1,845.98. Construct an amortization schedule.

Total Interest Principal Ending

Month
Payment Paid Paid Balance

0 10,000.00

1 1,845.98

2 1,845.98

3 1,845.98

4 1,845.98

5 1,845.98

6 1,845.98

Congratulations! We have successfully accomplished

our mission for this module!

I will see you in our next module!!

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References
Licuanan, Patricia B., 2016. Teaching Guide for Senior High School - Business Math:
Commission on higher Education.

Lopez, B., Martin-Lundag, L. and Dagal, K., 2016. Business Math (Teacher’s Manual).
Quezon City: Vibal Group, Inc.

Lopez, B., Martin-Lundag, L. and Dagal, K., 2016. Business Math (Textbook). Quezon City:
Vibal Group, Inc.

"Mortgage". Flickr, 2020. https://www.flickr.com/photos/gotcredit/34470440885.

For inquiries or feedback, please write or call:

Department of Education – Region III,

Schools Division of Bataan - Curriculum Implementation Division
Learning Resources Management and Development Section (LRMDS)

Provincial Capitol Compound, Balanga City, Bataan

Telefax: (047) 237-2102

Email Address: bataan@deped.gov.ph

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