In my previous post: How to compute for the monthly amortization payment without a mortgage calculator,  I showed how I compute for the monthly amortization payment by hand. Tyrone of  Millionaire Acts through his comment asked: “How about if we don’t have access to the amortization factors table? Is there a way to compute it?”. I answered yes in my own comment and I would like to illustrate how it can be done through this post.

I got the following amortization factor formula when I reviewed for the November 2007 Real Estate Brokers Licensure Exam under Engineer Enrico Cruz:

I

Amortization Factor = ———————————–

-M

1 – ( 1 + I )

Where:

I = the monthly interest rate. You can easily get this by dividing the annual interest rate by 12

M = the loan payment term in months. Just multiply the loan term by 12.

Let us use the same example in my previous post.
A foreclosed property is being sold for Php 1 Million and you can purchase it with only 20% down payment, with a maximum payment term of 10 years, at an annual interest rate of 12%. What would be the amortization factor you will use to compute for the monthly amortization?

First, let us compute for the Monthly Interest Rate (I) and the Loan payment term in Months (M)

I = Annual Interest rate/12

= 12%/12
= 1%

M = 10 years x 12 months/year

= 120 months

1%

Amortization Factor = ———————————–

-120

1 – ( 1 + 1% )

0.01

= ———————————–

-120

1 – ( 1+0.01 )

= 0.01434709

As you can see, we arrive at the same value for the amortization factor we used in my previous example. Of course I would only use the formula in excel as I would not want to compute this by hand, it would be very difficult to calculate for a number with a negative exponent like that in the example  right?! :-)

I would still prefer to keep a copy of the amortization factor table in my wallet so I don’t need to bring my laptop with me everywhere. I can then compute by hand or use the calculator on my cellphone. By the way, I believe there is also a built-in function in excel that can do this calculation but I haven’t tried it yet.

Easy right?!

—

To our financial freedom!

Jay Castillo
Real Estate Investor
Real Estate Broker License #: 20056
Blog: http://www.foreclosurephilippines.com
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Text by Jay Castillo. Copyright © 2009 All rights reserved.

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