Business Mathematics
14. Loan Amortization and Mortgages
MGMT 1001
Ch 14
,LEARNING OBJECTIVES
1. Construct a loan’s amortization schedule
2. Calculate the principal balance after any payment using both
the Prospective Method and the Retrospective Method
3. Calculate the final loan payment when it differs from the others
4. Calculate the principal and interest components of any
payment
5. Calculate mortgage payments for the initial loan and its
renewals
6. Calculate mortgage loan balances and amortization periods to
reflect prepayments of principal
2
,Loan Amortization
§ An interest-bearing debt is amortized if both principal and
interest are repaid by a series of equal payments made at
equal intervals of time
§ Mortgages and many consumer loans are repaid by this
method
§ Debts are generally repaid by making payments at the end
of the payment interval
§ the method and formula for ordinary simple annuities apply
3
, Loan Amortization: Terminology
AMORTIZATION AMORTIZATION
TERM LOAN
PERIOD SCHEDULE
• Periodic • Period over • Table showing
payment and which loan is the interest and
interest rate repaid. principal
are FIXED for • Usually long components of
duration of time periods of each payment.
loan. 10 – 25 years.
4
14. Loan Amortization and Mortgages
MGMT 1001
Ch 14
,LEARNING OBJECTIVES
1. Construct a loan’s amortization schedule
2. Calculate the principal balance after any payment using both
the Prospective Method and the Retrospective Method
3. Calculate the final loan payment when it differs from the others
4. Calculate the principal and interest components of any
payment
5. Calculate mortgage payments for the initial loan and its
renewals
6. Calculate mortgage loan balances and amortization periods to
reflect prepayments of principal
2
,Loan Amortization
§ An interest-bearing debt is amortized if both principal and
interest are repaid by a series of equal payments made at
equal intervals of time
§ Mortgages and many consumer loans are repaid by this
method
§ Debts are generally repaid by making payments at the end
of the payment interval
§ the method and formula for ordinary simple annuities apply
3
, Loan Amortization: Terminology
AMORTIZATION AMORTIZATION
TERM LOAN
PERIOD SCHEDULE
• Periodic • Period over • Table showing
payment and which loan is the interest and
interest rate repaid. principal
are FIXED for • Usually long components of
duration of time periods of each payment.
loan. 10 – 25 years.
4
