Senior High School

Business Mathematics
Module 8: Mortgages

AIRs - LM
LU_Business Mathematics_Module 8
ABM – BUSINESS MATHEMATICS
Module 8: Mortgages
Second Edition, 2021

Copyright © 2021
La Union Schools Division
Region I

All rights reserved. No part of this module may be reproduced in any form without written
permission from the copyright owners.

Development Team of the Module

Author: Myra V. Obejas

Editor: SDO La Union, Learning Resource Quality Assurance Team
Content Reviewer: Donna Casilla
Language Reviewer: Ronald June Balsomo
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Design and Layout: Angela Pauline C. Ganuelas

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Atty. Donato D. Balderas Jr.

Schools Division Superintendent
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Department of Education – SDO La Union

Office Address: Flores St. Catbangen, San Fernando City, La Union
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Email Address: [email protected]

LU_Business Mathematics_Module 8
 Senior High School

Business Mathematics
Module 8: Mortgages

LU_Business Mathematics_Module 8
Introductory Message
This Self-Learning Module (SLM) is prepared so that you, our dear
learners, can continue your studies and learn while at home. Activities,
questions, directions, exercises, and discussions are carefully stated for you
to understand each lesson.

Each SLM is composed of different parts. Each part shall guide you
step-by-step as you discover and understand the lesson prepared for you.

Pre-tests are provided to measure your prior knowledge on lessons in

each SLM. This will tell you if you need to proceed on completing this module
or if you need to ask your facilitator or your teacher’s assistance for better
understanding of the lesson. At the end of each module, you need to answer
the post-test to self-check your learning. Answer keys are provided for each
activity and test. We trust that you will be honest in using these.

In addition to the material in the main text, Notes to the Teacher are
also provided to our facilitators and parents for strategies and reminders on
how they can best help you on your home-based learning.

Please use this module with care. Do not put unnecessary marks on
any part of this SLM. Use a separate sheet of paper in answering the exercises
and tests. And read the instructions carefully before performing each task.

If you have any questions in using this SLM or any difficulty in

answering the tasks in this module, do not hesitate to consult your teacher
or facilitator.

Thank you.

LU_Business Mathematics_Module 8
 Target

Typically, a mortgage is obtained for a home, a house and a lot, or for a machinery
or equipment. A loan is a debt device that the borrower is obliged to pay lower back
with a predetermined set of installments, sponsored through collateral of said
immovable property. Today, the Internet has what is referred to as a mortgage
amortization calculator which helps prospective homeowners. They only enter the
place, the amount of the loan, the duration, and the APR (Annual Percentage Rate),
and it will provide the sum of their monthly payment, the average of the payments
for the whole loan period, and the repayment date or the date they will have to pay
the loan in full.

After going through this module, you are expected to:

1. Compute interest specifically as applied to mortgage, amortization, and

on services/utilities and on deposits and loans. (ABM_BM11BS-Ij-10)

Subtasks:
1. Comprehend what a mortgage is.
2. Compute for the down payment on a mortgage and the amount of the
mortgage loan.
3. Determine how payment is applied to interest and principal and determine
the balance of the loan after each payment.
4. Prepare an amortization table; and
5. Solve problems involving mortgages.

Before going on, check how much you know about this topic. Answer the
activity on the next page in a separate sheet of paper.

LU_Business Mathematics_Module 8
 Jumpstart

For you to understand the lesson well, do the following activity. Have fun
and good luck!

Activity 1: Read Me! Solve ME!

Direction: Compute for the answer.

You are planning to buy a house and lot and secure a mortgage given that
the price of the house and lot is P3,000,000.00. The real estate dealer is asking for
a 25% down payment:

a. How much is the down payment?

b. How much would be the amount of the mortgage loan?

Assume that you are to pay P13,489.70 monthly for 30 years at an interest
rate of 6%.

c. How much would go to the interest?

d. How much to the principal?

LU_Business Mathematics_Module 8
 Discover

Mortgage loan is when a financial institution uses the home as collateral for a
loan. A down payment is usually expected for most installment purchases. This
typically amounts to several percent of the purchase price. A mortgage loan is a long-
term loan. Usually, a borrower will choose a loan term between 5 and 30 years. Many
institutions offer a 50-year term loan, but the longer it takes to pay off a mortgage,
the higher the interest rate.

A property mortgage requires payment of the purchase price for the property
at the most basic level, and interest on the loan. The down payment is usually some
fraction of the property's purchase price. It is usually called the equity of the buyer.
Suppose you want to buy a secondhand car worth P310,000 and the seller wants a
down payment of 20 percent.

To compute for the down payment:

Down payment = Purchase price × Down payment %
= P310,000 × 20%
= P62,000

Therefore, if you pay the 20% down payment, the amount of the mortgage loan
would be the balance after the down payment has been deducted from the purchase
price, which in our example would be:
Mortgage loan = Purchase price − Down payment
= P310,000 – P62,000
= 248,000

Types of Mortgages

The two most common types of mortgages are fixed-rate and adjustable-
rate (also known as variable rate) mortgages.

Fixed-Rate Mortgages

Fixed-rate mortgages provide lenders with a fixed interest rate for a defined
period of usually 15, 20, or 30 years. For a fixed interest rate, the shorter the period
in which the creditor charges, the higher the monthly charge. Conversely, the longer
it takes the borrower to pay, the smaller the monthly amount of repayment. However,
the longer it takes for the credit to be repaid, the more the borrower ultimately pays
in interest charges.

The biggest advantage of a fixed-rate mortgage is that the homeowner can

count on their monthly mortgage payments being the same every month over their
mortgage life, making it easier to set household expenses and avoid any unnecessary

LU_Business Mathematics_Module 8
extra costs from one month to the next. However, if market prices grow sharply, the
borrower will not have to make higher monthly payments.

Adjustable-Rate Mortgages

Adjustable mortgages (ARMs) come with interest rates that can change over
the life of the loan, and usually do so. Market rate increases and other factors cause
interest rates to fluctuate, which changes the amount of interest the borrower has to
pay, and thus changes the total monthly payment due. The interest rate is to be
assessed and adjusted once a year or once every six months for adjustable
mortgages.

Term of the Loan: Total Number of Payments

The billing of the loan in installments is called amortization. The schedule

prepared which shows the interest payments for the payment duration (called the
loan term) is called the amortization table. Suppose you have to make one payment
per month for 5 years in our example in Module 2. The loan term is five years. Five
years multiplied by 12 months per year will give you 60, meaning you have to make
60 monthly payments to be able to fully pay your loan.

Monthly Payment

If there was no interest rate it would be easy to calculate your monthly rate.
248,000
Divide a loan sum by payment number ( = P4,133.33). The bank must make
60
money, however, so that interest is collected by the bank. Suppose the bank charges
5 percent per annum. The 5% is what is called the annual percentage (APR) average.
Since you are paying monthly, we have to convert the 5% APR to a monthly rate. We
divide 5% by 12 to get 0.416% (5%/12 =0.416%). To determine the monthly payment,
we use the following formula:

𝑖 × 𝑃 × (1+𝑖)𝐧
𝐴= (1 + 𝑖)𝐧 −1
where A is the monthly payment;
P is the loan’s initial amount;
i is the monthly interest rate; and
n is the total number of payments.

Using our example,

(0.00416)(𝑃248,000) × (1+ 0.00416)𝟔𝟎
𝐴= (1+0.00416)𝟔𝟎 −1
= P4,679.17

Amortization table

The amortization plan is a table or chart showing each monthly payment on

an amortizing loan indicating how much of each payment goes to interest, and how
much goes to principal. When the sum goes to interest reduces when payment is

LU_Business Mathematics_Module 8
made, so raises the amount that goes to the principal. Generally speaking the
amortization table refers to fixed mortgages/loans.

Using our example, a second-hand car with a 20 percent down payment is

worth P310,000.00. Your bank has decided to give you a P248,000.00 mortgage for
5 years at a fixed interest rate of 5 percent. What is the monthly payment? How much
money do you pay each month for interest and principal?

The loan sum is P248,000.00 which is the principal. When you pay for 60
months P4,679.17, it is going to equal P280,750.20. So if you subtract the amount
of the loan from the overall payments (P280,750.20 – P248, 000), the amount of
interest you would have to pay for the entire loan period will be P32,750.20.
Amortization Table

Although the monthly payment is constant, the amount of money charged to

interest and principal varies monthly. For the first payment, we multiply the principal
balance of P248,000 by the monthly interest rate of 0.00416 to get P1,031.68 to
determine what portion of P4,679.17 goes to interest. Therefore, deducting P1,
031.68 from P4,679.17 payment, it will result in P3,647.49. Deducting the P3,647.49
from P248,000, the new balance of the mortgage loan will now be P244,352.51.

If we continue this process, we can have an amortization table created. The

use of the Internet calculator for the amortization plan is typically resorted to. The
following amortization plan refers to our example as set out to the
myamortizationchart.com website:

Payment Summary

No. of Monthly Total Principal Total Interest Total paid

Payments Payment Paid Paid

60 P4,680.07 P248,000 P32,603.96 P280,803.96

Monthly Amortization Schedule

Payment Amount Principal Interest Balance

1 P4,680.07 P3,646.73 P1,033.33 P244,353.27
2 P4,680.07 P3,661.93 P1,018.14 P240,691.34
3 P4,680.07 P3,677.19 P1,002.88 P237,014.15
4 P4,680.07 P3,692.51 P987.56 P233,321.65
5 P4,680.07 P3,707.89 P972.17 P229,613.76

56 P4,680.07 P4,583.77 P96.29 P18,526.87

57 P4,680.07 P4,602.87 P77.20 P13,924.00
58 P4,680.07 P4,622.06 P58.02 P9,301.95
59 P4,680.07 P4,641.31 P38.76 P4,660.65
60 P4,680.07 P4,660.65 P19.42 P0.00

LU_Business Mathematics_Module 8
 Explore

Here are some enrichment activities for you to work on to master and
strengthen the basic concepts you have learned from this lesson.

Enrichment Activity 1: Fill the Missing Piece!

Use a separate sheet of paper for your answers. Compute and complete the missing
in the table.
PRINCIPAL RATE Down Mortgage loan
payment

1 P700, 000 10% P70,000

2 P260, 300 P31,236 P229,064

3 P800, 260 15% P120,039

4 P1,400,000 16% P1,176,000

5 P6,200,000 17% P5,146,000

6 P500,700 P55,077 P445,623

7 P3,450,600 21.2% P731,527.2

8 P780,000 10.8% P695,760

9 P4,150,000 P954,500 P3,195,500

10 P900,800 16.35% P753,519.20

Assessment 1
Directions: Use separate sheet of paper for your answers. Find the monthly house
payments necessary to amortize each loan.
1. P2,199,000 at 7.5% for 25 years
2. P3,000,000 at 7.2% for 35 years
3. P253,000 at 6.4% for 15 years

Compute the down payment for the following:

4. P2,000,000 at 5.3%
5. P2,199,000 at 7.5%

LU_Business Mathematics_Module 8
 Rubric for Scoring:
Criteria 3 2 1
Appropriate and The procedure is The procedure is The procedure is
comprehensible correct and almost complete. not complete.
procedure complete. There are multiple
There are multiple procedures
and appropriate presented, but
procedures they are not
presented. appropriate.
Computations Correct Few, but Many computation
computations. irrelevant, errors, which lead
computation to a completely
errors. erroneous result.

Enrichment Activity 2:
Directions: Answer the questions being asked: Write the solution and the answer.
1. The cash price of a dining room set is P2,290.00. Myrna buys it on an
installment basis. She pays 12 monthly installments of P206.10
a. What is the total amount she paid?
b. How much finance charge did she pay?
2. A house and lot cost P1,500,000. It requires 20% down payment and an
APR of 4% for 30 years.
a. Compute the down payment.
b. How much is the mortgage loan?
c. How much is the monthly amortization?

Rubric for Scoring:

Criteria 3 2 1
Appropriate and The procedure is The procedure is The procedure is
comprehensible correct and almost complete. not complete.
procedure complete. There are multiple
There are multiple procedures
and appropriate presented, but
procedures they are not
presented. appropriate.
Computations Correct Few, but Many computation
computations. irrelevant, errors, which lead
computation to a completely
errors. erroneous result.

LU_Business Mathematics_Module 8
Assessment 2
Directions: Write your answer on a separate sheet of paper. Solve the problem.
1. A brand-new car has a list price of P795, 000.00. The car dealer is giving
a trade discount of 10% and requires 20% down payment. The car dealer
has an arrangement with a bank to finance the balance on the car. The
term of the loan is 4 years. The bank is charging an interest of 5% per
annum.
a. Compute the net invoice price of the car.
b. Compute the down payment needed and the balance that will have to
be financed by the bank.
c. How much will the monthly payment be? What portion of the monthly
payment for the first month will go to interest and to principal? What
about for the second monthly payment?
d. Prepare the amortization schedule for the first half of the first year.

2. A sala set and dining set is priced at P60,999. The seller offers in
installment basis for 2 years at 9% and requires 16% down payment.
a. Compute the down payment and the remaining balance.
b. Compute the monthly payment.
c. What is the total payment for the buyer to pay?

Rubric for Scoring:

Criteria 3 2 1
Appropriate and The procedure is The procedure is The procedure is
comprehensible correct and almost complete. not complete.
procedure complete. There are multiple
There are multiple procedures
and appropriate presented, but
procedures they are not
presented. appropriate.
Computations Correct Few, but Many computation
computations. irrelevant, errors, which lead
computation to a completely
errors. erroneous result.

Great job! You have understood the lesson. Are

you now ready to summarize?

LU_Business Mathematics_Module 8
 Deepen

At this point, suppose your parents are planning to buy a machine or

equipment (to be used in your farm). Your parents ask you to inquire about securing
a loan in a bank, a savings and loan association, or a cooperative through online or
call. What interest charge do they have? Are there other finance charges involved?
How long is the borrower allowed to pay the loan? What different types of loans do
they grant and to whom? Based on the information you gathered compute the down
payment required, monthly amortization and amortization table (using manual
computation) for a term of 5 years.

Rubrics for Scoring the Output

Criteria Levels of Achievement

Highly Competent (2 Not Yet

Competent points) Competent (1
point)
(3 points)

Quality Information is Information is Information is

accurate. mostly accurate unreliable and/or
Resources are with only a few inaccurate.
legitimate. minor errors. One Resources are
resource may be invalid.
questionable.

Covers all areas Areas assigned are Majority of areas Areas assigned are
assigned covered fully. assigned are fully incompletely
covered. covered.

Able to draw
conclusions, make Able to draw Present other
connections and conclusions, make information
provide inferences connections but without analysis.
completely inferences are
incomplete.

LU_Business Mathematics_Module 8
 Gauge

Directions: Read carefully each item. Use a separate sheet for your answers. Write
only the letter of the best answer for each test item.
1. What do you name a loan which is used as collateral for property or real
estate?
A. Educational loan B. Financial loan
C. Mortgage D. Salary loan
2. What are the components of your monthly mortgage payment?
A. principal, interest, escrow
B. principal, interest escrow, taxes
C. principal, interest, taxes, insurance
D. principal, interest, taxes, amortization fees
3. What do you name the arrangement or contract involving a loan with a
fixed number of scheduled payments that is repaid over time?
A. Installment payment B. Interest
C. Down payment D. Mortgage loan
4. What do you name that certain percentage of the property's purchase
price?
A. Down payment B. Installment payment
C. Mortgage loan D. Interest
5. What do you name that certain percentage of the property's purchase
price?
A. Adjustable-rate mortgages B. Conventional mortgage
C. Fixed-rate mortgage D. Home loan
6. If you make one extra payment a year on a 30-year fixed mortgage, by how
much will it shorten the term of your loan?
A. one year B. two years
C. five years D. 10 years
7. How long may a borrower choose from a loan term?
A. 20 years B. between 5 and 30 years
C. 5 years to 30 years D. between 2 and 35 years
8. How many different terms (lengths) are available for a fixed-rate mortgage?
A. One B. Two
C. three D. five
9. What's the easiest term to qualify for: 15, 20 or 30 years?
A. 15 B. 20
C. 30 D. None of these
10. Which form of mortgage has interest rates that fluctuate over the entire life
of the loan (depending on the market)?
A. Adjustable-rate mortgages B. Conventional mortgage
C. Fixed-rate mortgage D. Home loan

10

LU_Business Mathematics_Module 8
11. What does ARM stand for?
A. adjustable-rate mortgage
B. adjustable-reasonable mortgage
C. annual return mortgage
D. annual rate mortgage
12. The average rate for a 30-year fixed mortgage is 3.48%. Assume a down
payment of 20% on a home purchase of P3,000,000. How much is the
down payment?
A. P6,000 B. P60,000
C. P600,000 D. P610,000
13. The average rate for a 30-year fixed mortgage is 3.48%. Assume a down
payment of 20% on a home purchase of P3,000,000. How much is the
mortgage loan?
A. P2,400,400 B. P2,400,000
C. P2,940,000 D. P2,994,000
14. The average rate for a 30-year fixed mortgage is 3.48%. Assume a down
payment of 20% on a home purchase of P3,000,000. How much is the
monthly payment?
A. P10,750.85 B. P10,751.30
C. P10,850.85 D. P10,890.50
15. The average rate for a 30-year fixed mortgage is 3.48%. Assume a down
payment of 20% on a home purchase of P3,000,000. How much you have
to pay for the entire term of the loan?
A. P1,470,300 B. P1,470,306
C. P1,570,306 D. P1,740,630

Great job! You are almost done with this module.

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LU_Business Mathematics_Module 8
LU_Business Mathematics_Module 8
12
JUMPSTART ACTIVITY 1 ENRICHMENT ACTIVITY 1
a. P750,000 1. P630,000 6. 11%
b. P2,250,000 2. 12% 7. P2,719,072.80
c. P13, 489.70 3. P680,221 8. P84,240
4. P224,000 9. 23%
5. P1,054,000 10. P147,280.80
ASSESSMENT 1 ENRICHMENT ACTIVITY 2
1. P15,032.86 1. (a) P2,473.20
2. P18,177.02 (b) P183.20
3. P2,051.06 2. (a) P300,000
4. P106,000 (b) P1,200,000
5. P164,925 (c) P5,725.87
ASSESSMENT 2
1. (a) P715,500
(b) DP=P143,100 Bal=P572,400
(c) Monthly Payment= P13,204.73
1st Payment: Portion of interest= P2,385.02 Principal= P10,819.71
2nd Payment: Portion of interest= P2,339.94 Principal= P10,864.79
(d)
MONTHLY AMORTIZATION SCHEDULE
PAYMENT AMOUNT PRINCIPAL INTEREST BALANCE
1 P13,204.73 P10,819.71 P2,385.02 P561,580.29
2 P13,204.73 P10,864.79 P2,339.94 P550,715.50
3 P13,204.73 P10,910.06 P2,294.67 P539,805.44
4 P13,204.73 P10,955.52 P2,249.21 P528,849.92
5 P13,204.73 P11,001.14 P2,203.59 P517,848.78
6 P13,204.73 P11,047.01 P2,157.72 P506,801.77
2. (a) DP=P9,759.84 Bal= P51,239.16
(b) P2,344.95
(c) P5,039.64
GAUGE
1. C 3. D 5. C 7. C 9. C 11. A 13. B 15. B
2. C 4. A 6. D 8. C 10. A 12. C 14. A
Answer Key
References

Printed Materials:

Lim, Yvette et’al. 2016. Business Mathematics. Quezon City, Philippines: Sibs
Publishing House, Inc.

Lopez-Mariano, Norma D. 2016. Business Mathematics pp.166-170. First Edition.

Manila, Philippines: REX Bookstore.

Lundag, Leah; Lopez, Brian Roy & Dagal, Keneth Adrian. 2016. Business Math.
Quezon City, Philippines: Vibal Group Inc.

Website:

Corporate Finance Institute. 2020. Mortgage - Definition, Overview, Examples, Types

& Payments. Available at:
<https://corporatefinanceinstitute.com/resources/knowledge/finance/mortg
age/>].

Ezez. 2020. "Mortgage | Definition & Calculator |

InvestingAnswers". Investinganswers.com.
https://investinganswers.com/dictionary/m/mortgage.

Investopedia. 2020. Mortgage. Available at:

<https://www.investopedia.com/terms/m/mortgage.asp

Kearns, Deborah. 2020. "5 Types Of Mortgage Loans For Homebuyers |

Bankrate.com". Bankrate.

Ezez. 2020. "mortgage - Google Search". Google.com.

https://www.google.com/search?q=mortgage&tbm=isch&tbs=sur%3Afc&hl=e
n&sa=X&ved=0CAIQpwVqFwoTCMiv7NLi6eoCFQAAAAAdAAAAABAD&biw=13
33&bih=640#imgrc=QmXfobejgGSrAM.

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LU_Business Mathematics_Module 8
 For inquiries or feedback, please write or call:

Department of Education – SDO La Union

Curriculum Implementation Division
Learning Resource Management Section
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Telephone: (072) 607 - 8127
Telefax: (072) 205 - 0046
Email Address:
[email protected]
[email protected]

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LU_Business Mathematics_Module 8