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How to Compute Monthly Amortization

Buyers usually ask their agents how much they would have to pay monthly for the property over a long term period. This is called monthly amortization. Monthly Amortization is defined as the monthly payment of a loan that includes the principal and the interest over an agreed period or terms. The following three are usually given:

  1. Loan amount
  2. Interest per annum
  3. Terms (number of years)

The type of interest used in real estate is usually diminishing interest method. This means that only the balance after payments made shall be applied with interest. Since the method of computation of deducting the payment first then apply interest is a very long process, there is a short cut formula that will simplify the process of computation. The formula is MONTHLY AMORTIZATION = LOAN AMOUNT  X FACTOR

How do we know the FACTOR then? There is a factor table that is universally used by banks, Pag-ibig, and other lending institutions. To get the factor, you need to know the INTEREST per annum and the TERMS (number of years to pay the loan). Get a factor table. The horizontal corresponds the INTEREST, while the vertical corresponds the TERMS (years).  The figure that meets the vertical and horizontal lines is the FACTOR.

For example, the interest rate is 8% and the Term is 15 years. The figure that meets the lines of  8% and 15 years is .01321507  This is the FACTOR. To get the monthly amortization, assuming the loan amount is P2,000,000

.01321507 X 2,000,000 = P26,430.14  round off to P26,430 per month

If the interest rate per annum is not found in the Factor table such as 7% as shown above, you can just add the factor result for 6% and the factor result for 8% (over the same number of years) and divide the sum by 2.

The factor table is available anytime. You can search it in google by typing the keywords “Factor table to get monthly amortization” It would be ideal if you download this Factor table into your computer, laptop or mobile phone so you can use it anytime.

FIXING PERIOD: Lending institutions like Banks or Pag-ibig offer Fixing period for loan applicants to choose. It offers, 1 year fixing period, 3 years, 5 years, 10 years, 15 years and up to the entire period of the loan such as 20 years. If the loan applicant chooses the 1 year fixing period, it offers the lowest interest per annum, But this also means that next year, the interest rate would be changed depending on the current interest rate which usually depends on the economy. If the interest rate increases, it will also cause an increase of the monthly amortization. So, if the loan applicant chooses the 3 year fixing, the interest would not change for 3 years as well as the monthly amortization, but the interest would also a little higher than the 1 year fixing. In principle, the longer the FIXING PERIOD, the higher the ANNUAL INTEREST.

It’s the job of the agent or real estate broker to explain this thoroughly to buyers by asking them some questions with regards to their priorities. If buyers want very low monthly amortization, they can choose the 1 year fixing, but they should be ready when this will change next year. If they choose, 10 year fixing on the other hand, they are quite safe for 10 years but the interest rate is also much higher, so the monthly amortization is also quite high.  For your buyer’s convenience, you can compute the monthly amortization for your buyer and let him choose the fixing period after showing him the monthly amortization for each fixing period.

Usually the following are the difference in the interest rate with their FIXING PERIOD,

1 year fixing  6.5% interest per annum

3 year fixing  7.5% interest per annum

5 year fixing 8.5% interest per annum

10 year fixing 10% interest per annum

The factor table is available anytime. You can search it in google by typing the keywords “Factor table to get monthly amortization” It would be ideal if you download this Factor table into your computer, laptop or mobile phone so you can use it anytime.

But the fastest way to compute the monthly amortization is to use APPS in your mobile phone. You can search in the GOOGLE PLAY the keywords “Loan Amortization Calculator” and choose the Free features. Download what you like and try if it works. Just input the LOAN AMOUNT, ANNUAL LOAN INTEREST, and the NUMBER OF YEARS. Then click CALCULATE. If it works, keep it and use it when you need it. If it doesn’t work, remove it and try another one.

 

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