A common real estate math problem you may encounter on your real estate licensing exam will be to calculate a buyer’s monthly mortgage payment based on the amount and terms of the loan. While calculating the exact monthly mortgage payment is a very complex math problem (i.e., leave it to your buyer’s lender to do the actual calculation), you can provide a ballpark estimate of what a person’s mortgage payment will be using a loan amortization factor table.
A loan amortization factor helps to estimate a buyer’s monthly mortgage payment. EZ Real Estate Math has a sample loan amortization factor table that you can use for real estate math problems practice. First, we need to know the terms of the loan (i.e., the length of the loan and the interest rate) in order to look up the amortization factor. Once we have the amortization factor, we multiply it by the loan amount (calculated in thousands). This will give us the estimated monthly mortgage payment. Note that this only include PI (Principal and Interest) and does NOT include taxes and insurance.
Here’s a free loan amortization real estate math problem for you to practice:
What is the estimated mortgage payment (PI) for a $250,000 loan at 5% for 20 years?
First, we calculate the amortization factor. Look at the amortization factor table and find the box where the loan term (20 years) and interest rate (5%) intersect. The amortization factor is 6.60.
Next, we multiple the amortization factor by the loan amount (in thousands) = 6.60 x 250 = $1650. Therefore, the estimated mortgage payment is approximately $1650. If we use an online loan amortization calculator and type in the same loan amount and terms, we see that the actual mortgage payment is $1649. Pretty close for our quick calculation!
For more real estate math practice problems, check out our free real estate math practice exam or our 125 Real Estate Math Problems Solved workbook, solutions manual, and video explanations.