Republic of the Philippines

Department of Education
National Capital Region
Schools Division Office – Caloocan City

BUSINESS MATHEMATICS

Quarter 1 Week 9
Module
 Business QUARTER 1 Week 9
Mathematics

NAME: ____________________________________ YR & SEC: _____________________

Competency:
The learner should be able to compute interest specifically as applied to mortgage,
amortization, and on services/utilities and on deposits and loans after finishing this module.

To the Learners:
Before starting the module, I want you to set aside other tasks that will disturb you while
enjoying the lessons. Read the simple instructions below to successfully enjoy the objectives of this
kit. Have fun!

1. Follow carefully all the contents and instructions indicated in every page of this module.
2. Writing enhances learning. Keep this in mind and take note of the important concepts in your
notebook.
3. Perform all the provided activities in the module.
4. Let your facilitator/guardian assess your answers using the answer key card.
5. Analyze the post-test and apply what you have learned.
6. Enjoy studying!

Expectations

This module was designed to help you master how to compute interest as applied to mortgage,
amortization, and on services/utilities and on deposits and loans.

After going through this module, you are expected to:

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 in interest and principal, and determine the balance of the
loan after each payment;
4. Prepare an amortization table manually and using the amortization calculator online; and
5. Solve problems involving mortgages.

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 1

 Pre-test

Choose the letter of the correct answer. Write your answer on a separate sheet of paper.

1. What is the term used for the installment payment on the loan?
A. Amortization C. Balance
B. Arrears D. Interest

2. A second-hand car is priced at Php 380,000.00 at 15% down payment and the rest for
installment at 5% annually for 10 years. How much is the loan amount?

A. Php 57,000.00 C. Php 380,000.00

B. Php 323,000.00 D. Php 437,000.00

3. What is usually required by sellers in an installment purchase that is also called the buyer’s
equity?
A. Amortization C. Installment
B. Down payment D. Mortgage

4. In an amortization payment, a portion goes to the payment of the principal, where does the
other portion go to?

A. Amortization schedule C. Interest

B. Balance due D. Taxes

5. If a mortgage loan is charged at 6% annual rate, how much is the monthly interest rate?

A. 0.005 C. 0.06

B. 0.05 D. 0.6

Looking Back at your Lesson

In the previous lesson, you learned about the break-even analysis as a technique used by
business owners and entrepreneurs in identifying situations where the company or the business
begins to make profits. In break-even analysis, the business is able to determine the number of
products or services that must be sold in order to cover costs including productions and labor.

Break-even analysis is particularly important to businesses especially during this time of

pandemic where small businesses are at risk of losing financially because of the effect in our economy.
Through break-even analysis, companies are able to identify whether the business can still cope with
the present situation, and to help in the decision about the continuance or discontinuance of the
business. Through break-even analysis, one can have a clear projection about profits and losses at
any given output level. Also, with the minimum sales level, it is also possible to determine whether
the company can still make a profit, break-even or make a loss.

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 2

 Introduction of the Topic

Lesson 1: Mortgages
The present situation brought about by the COVID-19 pandemic has challenged not only the
government and the big companies in the country, but the threat of losing jobs and properties is
greater among individuals and the hundreds of thousands of the working class in the country.

In this condition where the economy is at a low, individuals resort to loans and other related
activities just to revive the financial status of the family or of the business. Different types of loans
are given by banks and other credit and financial institutions in the country. However, whatever loan
one may get into, one thing is for sure, the lender or the creditor will collect interest. Mortgage loan
is one of these loans given to individuals and companies.

A mortgage is a legal agreement by which a bank or a credit institution lends money at interest
in exchange for taking the title of the debtor’s property with the condition that the conveyance of title
becomes void upon payment of the debt. A mortgage is probably the biggest loan one can go into.
Nowadays, people are planning to mortgage their precious property and can easily see how the
payment of the loan works through applications available on the internet called amortization
calculator. These sites let you access and print your own amortization schedule.

Down Payment and Mortgage

A Mortgage loan is when you use your property as a collateral for a loan from a financial or
credit institution. It is a binding agreement that gives the lender the right for taking the title of the
debtor’s property which will be given back once the full payment of the loan is reached.

For most installment purchases, a down payment is generally required. It is usually a certain
percent of the purchase price. At the most basic level, a property mortgage involves payment of the
purchase price for the property and interest on the loan. The down payment is usually a certain
percent of the purchase price of the property. This is generally called the buyer’s equity.

Assume that you wish to purchase a house and lot worth Php 1,420,000.00 and the seller
requires a 20% down payment.

To compute for the down payment:

Down payment = Purchase price x Down payment %

= Php 1,420,000 x 20%

= 1,420,000 x 0.2

= Php 284,000.00

Once the 20% down payment is paid, 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

= Php 1,420,000 – Php 284, 000

= Php 1,136,000

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 3

Term of the Loan and Total Number of Payments
The installment payment on the loan is termed amortization. The schedule that shows the
installment payments for the period of payment (called the term of loan) is called the amortization
table. In our example, assume that you have to make one payment per month for 30 years, then 30
years is the term of the loan. Thirty years multiplied by 12 months per year will give you 360, meaning
you have to make 360 monthly payments to be able to pay your loan.

Monthly Payment
If there were no interest rate, determining your monthly payment would be easy. Just divide
the loan amount by the total number of payments: Php1,136,000 ÷ 360 = 3,155.56. However, the
lender has to make money so the lender or the financial institution will collect interest.

Assume that the lender will charge you 5% annually. The 5% is termed as the annual
percentage rate or APR and since you are to make monthly payments, the APR must be converted to
a monthly rate. So, the APR of 5% will divided by 12. Let i be the monthly payment. Hence,
0.05
𝑖= = 0.004167
12
The monthly payment is given by the following formula:
𝑖 × 𝑃 × (1 + 𝑖)𝑛
𝐴=
(1 + 𝑖)𝑛 − 1

where A = the monthly payment

P = loan’s initial amount

i = monthly interest rate

n = total number of payments

Applying the formula to our example

0.05 0.05
12 × (1,136,000)(1 + 12 )360
𝐴=
0.05
(1 + 12 )360 − 1

𝐴 = 6,098.30

Note that we did not round off on the value of i as it would create a difference in computation.
Scientific Calculators nowadays are so advanced that they can take multiple line computations. You
can download a better version of a scientific calculator using your mobile phone.

Considering our example, the house and lot that you wish to buy is priced at Php1,420,000
with a 20% down payment. The bank agreed to provide you with Php1,136,000 mortgage at a fixed
interest rate of 5% annually for 30 years. This leads to the questions: What is your monthly payment?
How much money are you paying toward interest and principal each month?

The amount of the loan is Php1,136,000, which is the principal. If you pay Php6,098.30 for
360 months, that will amount to

Php6, 098.30 x 360 = Php 2,195,388

Therefore, if we deduct the loan amount from the total payments (2,195,388 – 1,136,000), the
amount of interest that you will have to pay for the entire term of the loan would be Php 1,059,388.

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 4

Note that is very expensive to get a mortgage loan because, as you can see, even if the interest is only
5% per year, you pay almost double the amount of your loan.

Amortization Table
The monthly payment for a mortgage loan is fixed. However, the amount of money paid to the
interest and principal varies each month. For the first payment, to determine what portion of the Php
6,098.30 goes to interest, we multiply the principal balance of Php1,136,000 by the monthly rate of
0.05
interest of 12
. Hence,

0.05
Php1,136,000 x = Php 4,733.33
12

On the first payment, Php4,733.33 is paid to interest.

Now, deducting Php 4,733.33 from the monthly payment of Php6,098.30 will give us the
amount paid to the principal. Hence,

Php 6,098.30 – 4,733.33 = Php1,364.97

So, on the first payment of Php6,098.30, only Php1,364.97 is paid to the principal. Subtracting
Php1,1364.97 from the loan amount of Php1,136,000 will give the new balance of the mortgage loan:

Php 1,136,000 – 1,364.97 = Php1,134,635.03.

0.05
For the second month, multiply Php1,134,635.03 by the monthly interest rate of 12
to get
Php4,727.64 for the interest portion. So, the principal portion will be Php6,098.30 – Php4,727.64 =
Php1,370.65.

If we continue the process, we can prepare the amortization table although doing this would be
tedious. For most cases, the amortization schedule calculator is resorted to by people who are
planning to get a mortgage loan. The following table shows the first 10 monthly payments in our
example.

Payment number Payment Amount Interest Amount Principal Reduction Balance Due
1 6098.30 4733.33 1364.97 1134635.03
2 6098.30 4727.64 1370.65 1133264.38
3 6098.30 4721.93 1376.36 1131888.01
4 6098.30 4716.20 1382.10 1130505.91
5 6098.30 4710.44 1387.86 1129118.05
6 6098.30 4704.66 1393.64 1127724.41
7 6098.30 4698.85 1399.45 1126324.96
8 6098.30 4693.02 1405.28 1124919.69
9 6098.30 4687.16 1411.13 1123508.55
10 6098.30 4681.28 1417.01 1122091.54
Table 1. First 10 Payments for a Mortgage Loan of Php1,136,000 at 5% annual interest for 30 years

This process of calculating interest based on the remaining principal or the balance due
continues until the mortgage is paid in full. Notice how big the interest is during the start of the
payment but it declines and the amount going to paid off to the loan increases until the end of the
term of the loan. Table 2 shows the last 5 payments of the mortgage loan in our example using the
amortization calculator at amortization-calculator-philippines.blogspot.com.

Payment number Payment Amount Interest Amount Principal Reduction Balance Due
356 6098.30 125.45 5972.85 24145.00
357 6098.30 100.57 5997.73 18138.26
358 6098.30 75.58 6022.72 12115.54

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 5

 359 6098.30 50.48 6047.82 6067.72
360 6093.00 25.28 6067.72 0
Table 2. Last Five Payment Schedule for a Mortgage Loan of Php1,136,000 at 5% annual interest for
30 years

Oftentimes, mortgage payments for house and lot includes fees associated with the legal
obligations of owning a home, like taxes and insurance, and private mortgage insurance (PMI). To
ensure you keep the real estate tax and PMI updated, lenders typically set up an escrow account. The
portion of your monthly mortgage payment associated with taxes and insurance will be held in escrow
until it is due, sometimes, once a year such as with real estate taxes.

Assume that the pro-rated real estate tax is Php 500 and the private mortgage insurance is
Php 500, then we add Php 1,000 to the Php 6,098.30 to come up with the monthly payment of
Php7,098.30. Inasmuch as the real estate tax and the private mortgage insurance are not part of the
payment for the basic house and lot price, the computation for the portion going to the interest and
the portion going to the principal still applies.

Example 1:

Assume that you are planning to buy a brand new Toyota Rush priced at Php 968,000. The
terms ask for a 25% down payment and an APR of 7% for 10 years. Using manual computation,
prepare the first 5 months of the amortization schedule.

Solution:

Solving for the down payment:

Down payment = 968,000 × 0.25

= Php 242,000

Solving for the loan amount:

Mortgage loan = 968,000 – 242,000

= Php 726,000

0.07
The total number of payments will be 12 x 10 = 120, and the monthly interest rate is 12
.

Solving for the Monthly Payment:

0.07 0.07 120

× 726000 × (1 + 12 )
𝐴 = 12
0.07 120
(1 + ) −1
12
A = Php 8,429.48

Hence, the first five monthly payments are as follows:

Payment number Payment Amount Interest Amount Principal Reduction Balance Due
1 8429.48 4,235.00 4194.48 721805.52
2 8429.48 4210.53 4218.94 717,586.58
3 8429.48 4185.92 4243.55 713,343.03
4 8429.48 4161.17 4268.31 709074.72
5 8429.48 4136.27 4293.21 704781.51

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 6

Example 2:

Because of the difficulty and danger in riding public transportation during the Enhanced
Community Quarantine (ECQ) in Metro Manila, Mr. Coven decided to get a car payable in installment.
The car is priced at Php 620,000.00 and the seller is asking for a 10% down payment and the bank
agrees to a 4.5% annual rate payable in 15 years. Answer the following questions.

a) How much is the down payment?

Down payment = 620,000 x 0.10
= Php 62,000.00
b) How much is the loan amount for installment?
Loan amount = 620,000.00 – 62,000.00
= Php 558,000.00
c) What is the total number of monthly payments in the schedule?
Total number of monthly payment = 15 x 12
= 180
d) Use an online amortization calculator to show the first 10 payments in the amortization table.

e) How much is the fixed monthly payment?

Php 4,268.67

f) How much goes to the payment of the principal during the first payment schedule?
Php 2,176.17

g) How much goes to the payment of the interest during the first payment schedule?
Php 2092.50

Activities

Activity 1: You Complete Me

A lot only property is priced at Php500,000.00 at 5% annual interest for 15 years with 15% down
payment. The following table shows the first 5 monthly payments. Complete the table.

Payment number Payment Amount Interest Amount Principal Reduction Balance Due
1 3712.29 1,458.33 2,253.96
2 3712.29 2,263.35 345,482.69
3 1,439.51
4 3712.29 2,282.25 340,927.66
5

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 7

Activity 2: Online Adventure
Consider yourself as a businessman/woman planning to expand your company. To raise
the needed fund for your expansion, you planned on getting a mortgage loan and have
your building and company real estate as collateral. The bank charges a 6% annual rate
for a P30-M loan payable in 30 years.

Now, before going into the binding agreement with the bank, you wanted to see how
your monthly payment for 30 years would be.

Using your mobile phone with data or a computer with internet connection, go to
amortization-calculator-philippines.blogspot.com and compute for the monthly
payment.

Screenshot the first 10 payment schedule for the mortgage loan.

Remember

 The monthly installment on mortgage loan is termed amortization. Mortgage loan is when you
use your property as collateral for a loan from a financial institution.
 A down payment is generally required for purchases on installment. It is usually a certain
percent of the purchase price. It is called the buyer’s equity.
 The formula for monthly payment on mortgage loan is given by:
𝑖 × 𝑃 × (1 + 𝑖)𝑛
𝐴=
(1 + 𝑖)𝑛 − 1
where A = the monthly payment
P = loan’s initial amount
i = monthly interest rate
n = total number of payments
 An amortization schedule is usually prepared for guidance in the payment of a mortgage loan.
Part of the monthly amortization goes to the principal and part goes to the interest. As the
principal is reduced, the interest goes down and the portion applying toward payment of the
principal increases.

Check your Understanding

A secondhand Toyota Corolla car is priced Php 320,000.00 net. The owner is asking for a 30% down
payment and an installment term of 3 years at a monthly interest rate of 0.5%.

1. How much is the down payment?

2. How much is the loan amount?
3. What is the total number of payments?
4. How much is the fixed monthly payment?
5. How much goes to interest during the first payment?
6. How much goes to the principal during the first payment?

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 8

 Post-test

Choose the letter of the correct answer. Write the chosen letter on a separate sheet of paper.

1. If a mortgage loan charges 10% annual rate payable in 10 years, what is the total number of
payments that the debtor has to make to pay off the loan?
A. 10 C. 120
B. 100 D. 150
2. Which of the following may be added to the monthly payment of a mortgage loan for real estate
property?
A. Miscellaneous charges C. Tax
B. Handling fee D. Processing fee
3. What do you call the matrix that shows the monthly payment a debtor has to make in a
mortgage loan?
A. Amortization B. Price list
B. Amortization schedule D. Tax table

4. If a mortgage loan charges a 7% annual rate, what will be the monthly interest rate?
A. 0.00583 C. 0.07
B. 0.05833 D. 0.007

For numbers 5 – 10, base your answers from the following situation:
A couple would like to purchase a house through a mortgage loan. The property is priced at
Php2,500,000.00 and the seller charges 10% down payment and the rest is for installment
payment at 4% annual interest rate payable in 20 years.
5. How much is the down payment?
A. Php 13,634.56 C. Php 250,000.00
B. Php 100,000.00 D. Php 500,000.00
6. How much is the loan amount?
A. Php 225,000.00 C. Php 2,250,000.00
B. Php 250,000.00 D. Php 2,250,000.00
7. What is the total number of payments for the installment?
A. 20 C. 120
B. 100 D. 240
8. How much is the monthly payment?
A. Php 6,134.56 C. Php 13,634.56
B. Php 7,500.00 D. Php 100,000.00
9. How much goes to the payment of the principal during the first payment schedule?
A. Php 6,134.56 C. Php 13,634.56
B. Php 7,500.00 D. Php 100,000.00
10. How much goes to the payment of the interest during the first payment schedule?
A. Php 6,134.56 C. Php 13,634.56
B. Php 7,500.00 D. Php 100,000.00

Additional Activities
To better understand the lesson, watch the supplementary video on
https://www.youtube.com/watch?v=88mQCgynwjk entitled “Amortization Explained Simply”.

https://www.amortization-calculator-philippines.blogspot.com

DALMACIO D. DAYTA BUSINESS MATH QUARTER 1 WEEK 9 9