Attempts: Average: 13 5. The mathematics of mortgage loans Part 1 The Mathematics of Mortgage Loans In general, a mortgage loan is repaid monthly over the tem of the loan using the process of amortization, in which each payment contains two components: the interest that is owed on the debt outstanding and the portion of the principal that is being repaid. An amortization table or schedule details the monthly payments, the portions that will be used to pay the accrued inberest and the repayment of the principal, and the debt remaining after each payment is made over the life of the loan. Example Amortization Schedule for a 10-Year Conventional Mortgage Loan (No input required) Monthly Interest (Col. #4) Ending Balance (Col. #6) Monthly Repayment of Principal (Col. #5) Month Amount Col. #1) (Col. #2) (Col. #3) 120 Start with the theory behind the mathematics of amortization. 1. In completing an amortization schedule for a conventional mortgage, it is important to recognize the following The monthly payments are .The monthly in amount. payment is calculated by multiplying the mortgage's interest rate by the loan's outstanding balance. The amount used to repay the loan's princpal is calculated as the difference between the monthly payment amount and the monthly interest amount. It is over the life of the loan. .The ending balance for a partiaular month is calculated by subtracting the month's payment from the month's beginning balance. 2. Therefore, as the loan is repaid, the amount of interest owed by each payment and the amount of principal repaid 3. The tem example, a home that is worth, or has a market value of, $200,000 currently has a $165,000 mortgage loan against it. The house's owner currently has home is greater than the loan on it, the homeowner's equity is homeowner owes more on the home than the house is worth, then the homeowner will have This is also referred to as being refers to the dollar value of a home in excess of the amount owed on it. For of equity in his or her home. Further, when the market value of the , but in market conditions in which the equity in the value of the home. 1. As the loan is repaid, the homeowners equity The second source of homeowner's equity is: O The appreciation in the market value of the home O The depreciation in the market value of the home