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Amortization Schedule

Mortgage Calculator and Amortization Schedule… Plus, How To Save On Your Loan Payments

by Pag-IBIG Financing Admin

In the previous article about amortizations, you learned how to determine the monthly amortization given a particular loan amount, loan term (in years) and interest rate (per annum).

It is very important to bear in mind that these three factors primarily determine the scheduled amount of the monthly amortization.

This article somehow extends on the previous one and here I’ll discuss the following topics with the help of an online mortgage calculator, which is also included here:

  • How to generate the Monthly Amortization Schedule.
  • The two components that go into the monthly amortization: interest and principal dues.
  • As the title of this article says, “How to save on your loan payments.”

The Mortgage Loan Calculator

With the help of the Mortgage Calculator shown below, let’s see how the amortization schedule looks like on a monthly basis.

Important Note When Using The Mortgage Calculator: When you click on the Calculate Button, the result displays in a pop-up window. To close the window, simply click the Close Button located at the upper right corner of the resulting pop-up window.



Powered by Auto Loan Calculator

As you can see, the tool has some default values already and if those values perfectly match your loan, all you have to do is click on the Calculate Button to show the results. But for most of us, our cases are of course different from the default example.

Let’s say your property costs P 2,000,000 and you are to put 20% down payment up-front — that should be P 400,000 out of your pocket. Furthermore, let’s say that the going interest rate in the market is 10.5% per annum and that you plan to pay the PhP 1,600,000 loan in 3 years only. From here, you want to determine the following:

  • Monthly Amortization Amount
  • Monthly Amortization Schedule

If you have entered the right values from the calculator shown above, you should get the monthly amortization at PhP 52,003.91 and that the total amount paid in interest for the whole 36-month duration of the loan should be PhP 272,140.75 (see at the bottom part of the resulting Amortization Table).

Here are some graphics to visually guide you on the results.

Monthly Amortization Schedule Table

Figure 1 : Monthly Amortization Table for P 1.6M loan payable in 3 years at 10.5% interest rate.

The Amortization Table above only partially shows 9 months out of a total of 36 months amortization schedule.

You will find the total Principal and Interest Payments at the bottom of the Tabular data when you scroll it down. It should look like this on your screen:

Pag-IBIG Loan Table

Figure 2 : Monthly Amortization Table continued from the previous Table. This time, only the last part of the amortization schedule is being shown.

If your results don’t match with this one, please do it all over again until you get it right. This is a very powerful tool of analysis right at your disposal.

More On Interest and Principal Dues

Take another look at the resulting Amortization Schedule Table.

If you add up the Interest amount due and the Principal amount due at any row, it always results to 52,003.91.

That magic number is not at all magical. That’s your monthly amortization!

In other words, the amortization consists of two components, namely: the principal due and the interest due. Each payment that you make against your scheduled amortization, a portion of it goes to the principal payment and the other portion goes to the pay the interest.

From the example above, your first monthly payment of 52,003.91 pays for the PhP 14,000.00 interest and the PhP 38,003.91 principal. On the second month, PhP 13,667.47 is allocated for the interest payment and PhP 38,336.44 for the principal payment.

How To Save on Your Loan Payments

Have you noticed that at the early part of the schedule – that’s the first few rows of the tabular data – so much goes into the interest payment and only a small portion goes into the principal payment? And at the later stage of the schedule, a small amount is now allocated to the interest while the bigger part now goes to the principal.

(Actually, this will become more apparent at longer loan terms, say 15 or 30 years.)

This is always the case for mortgage loans: it follows the Declining Balance Model. That is, assuming your payments are religiously made on schedule, the principal balance is reduced over time and the next schedule is also smaller since the interest is always applied on the remaining balance.

So in other words, if you make a payment that is greater than the scheduled amount, the excess value is deducted from the principal, reducing the remaining balance further.

Actually there is a two-fold effect when you make advanced payments against your mortgage loan:

  • you save on the interest payments
  • you pay off your loan earlier

From here, we can say that one of the ways you can save on your loan payments is to make advanced payments. This way, you are actually save on paying the interests.

There are methods that help you determine the effects of advanced payments at any period of your amortization schedule, but we won’t discuss that in this article yet. Suffice it to say, that making advanced payments is almost always to your advantage.

~~~

This article on Mortgage Calculator and Amortization Schedule is written by Carlos Velasco.

Filed Under: Housing Loans, Real Estate Finance Tagged With: Amortization, Amortization Schedule, Housing Loan, Interest Rate, Mortgage Calculator, Mortgage Loan

Pag-IBIG Housing Loan Amortization Demystified

by Pag-IBIG Financing Admin

This is one of those topics that a lot real estate buyers are clueless about. Many of them just don’t know how the monthly amortization is determined. This is true for both the first time as well as the seasoned home buyers — and a few real estate agents I’ve met. They simply let the bank, or any lending institution for that matter, handle the computation for them.

Take this particular question shown below which is commonly encountered by real estate sales people.

“How much is the monthly payment for this house which is priced at P1.2M?”

First, any attempt to give a figurative amount to answer that question is meaningless. For one, the question itself is already wrong.

Home Loan Computation: The Amortization Formula

The monthly amortization — or the monthly payment, if you will — is a figure that is dependent on three factors:

  • Loan Amount. The actual amount borrowed, usually the selling price less the down payment.
  • Interest rate. This figure is usually expressed as per annum value, likewise known as annualized interest rate. If you are familiar with bank financing, you have probably noticed that the interest rate is different for each bank. In the case of Pag-IBIG Housing Loan, the interest rate is dependent on the loan amount.
  • Loan term. This tells how long the loan is going to be fully paid; also normally expressed in terms of the number of years. In Pag-IBIG Home Financing, the loan term is usually 15 years or 30 years, though, you may also opt for a shorter loan term.

To determine the monthly amortization, we can simply use this equation:

Amortization Equation -- For Pag-IBIG Housing Loans or Bank Loans

Essentially, this amortization formula says that

  • Given a fixed interest rate and loan term, your monthly amortization is directly proportional to the amount of loan. The bigger the loan amount, the bigger the monthly amortization due.
  • Given a fixed interest rate and a particular loan amount, the monthly amortization is inversely proportional to the payment period. The shorter the payment period, the larger the amortization; the longer the payment period, the smaller the monthly payment due.

In other words, while you may be paying a higher monthly amount for a 15-year mortgage compared to a 30-year mortgage, the primary advantage to you is that the loan if fully paid in a shorter period of time.

The main advantage of using the formula above is that it is very handy and versatile. Anyone can use it given any amount of loan, loan term and interest rate.

However, a lot of people are simply lost with Mathematical equations. And not amount of explanations will ever want them to use any formula to determine any figure.

Luckily for them, there is also another way of determining the monthly amortization and that is by using an Mortgage Factors Table such as the one shown below.

The Pag-IBIG Mortgage Factors Table

Take note that this table is made especially for The Pag-IBIG Housing Loan with interest rates effective at the time of this writing (April 2011). You can use it for loan terms starting from 1 year to a maximum of 30 years loan term.

The annual interest rate shown is only the following: 6%, 7%, 8.5%, 9.5%, 10.5% and 11.5%. For interest rates other than these, the table is not applicable anymore. It’s best to use a Mortgage Calculator – a tool which will become available on this website soon.

Pag-IBIG Home Loan Amortization Factors

Given the table above, it is now very easy to determine the monthly amortization by simply following this understandable formula:

Monthly Amortization = (Loanable Amount) x (Factor Rate)

Sample Computation

Consider this hypothetical case: You are buying a Pag-IBIG Home worth P 1.2M and you are planning to put a down payment of P 240,000 which is 20% of the selling price. How much then would be the monthly amortization if you are to pay it is 15 years? How about if the loan is to be paid in 30 years?

Please be guided by the formula above and the interest rates of Pag-IBIG Housing Loan shown below.

Pag-IBIG Housing Loan Interest Rate

From the case in point and looking at the Factor Rates shown at the Table, we can gather the following:

Loan Amount: 960,000 (this is Price 1,200,000 less Down Payment of 240,000 )

For 15-Year Mortgage, the Factor Rate = 0.00984740.

Monthly Amortization (in 15 years) = (960,000) x (0.00984740) = 9,453.50

For a 30-year mortgage, the factor rate = 0.00768913

Monthly Amortization (in 30 years) = (960,000) x (0.00768913) = 7,381.56

When using this formula, take note we are not putting into consideration some other trivial payments like fire insurance, mortgage redemption insurance, membership dues and others. We are leaving that for the sake of simplifying the illustration.

***

Update: A more detailed article about the Amortization and Mortgage Calculator has been made on this website. Please check it now.

~~~

“Pag-IBIG Housing Loan Amortization Demystified” is written by Carlos Velasco.

Filed Under: Housing Loans, Real Estate Finance Tagged With: Amortization, Amortization Schedule, Housing Loan, Interest Rate, Pag-IBIG Housing Loan, Pag-IBIG Mortgage

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