Real Estate Math Formulas: Understanding Amortization Factors

One of the main topics on the real estate math licensing exam is understanding amortization factors. Because the actual monthly mortgage payment calculation is very complicated, amortization factors are a quick and easy way to estimate the monthly mortgage payment a buyer will need to make. In many states, the testing center will have an amortization factor table for you to reference during the exam, so don’t worry about memorizing the amortization factor table!


Real Estate Math Formulas: Solving Amortization Factor Problems

The easiest way to solve an amortization factor real estate math problem is to write down all of your “knowns” and use the amortization table to figure out your unknown. There are only 3 parts to the amortization table: the length of the loan across the top, the interest rate on the vertical axis, and then the amortization factor. Most real estate math problems will ask you to find the missing number.


Real Estate Math Practice Problem: Estimating Mortgage Payments Using Amortization Factors

The real estate math licensing exam may have the following problems:

Example 1. What is the monthly mortgage payment (PI) for a $250,000, 30-year loan at 8.5%?

Solution 1. To solve this problem, we first look at the amortization table to find that the amortization factor of a 30 year loan at 8.5% is 7.69.

Then, the estimated mortgage payment is the amortization factor x loan amount / $1000 = 7.69 * 250 = $1,922.50

Example 2. Johns’s mortgage payment (PI) is $1,591.5. If his $150,000 loan is for 10 years, calculate his interest rate.

Solution 2. To solve this problem, we first work backwards to find the amortization factor, which is: Amortization Factor = Est Payment / (Loan Amount / $1000) = 10.61

Then, we look at the amortization table to see that the closest interest rate that has an amortization factor of 10.61 and 10 years is 5%. So John’s interest rate is 5%.


BONUS: Real Estate Math Licensing Exam Study Tip

Amortization factor problems are one of the more challenging math problems to solve. If you are getting stressed out or spending a lot of time on one problem, mark the question number and come back. You do not have to get 100% to get your real estate license, so it is best to spend your time taking a first pass and answering all the questions you know. Then go back, if you have time, and spend time on the more difficult questions. This ensures you don’t waste 20 minutes on one problem and then can’t finish the rest of the exam.

In your everyday life as a real estate agent, you probably won’t be using the amortization factor table that much. Most often you’ll probably be working with a real estate lender or mortgage professional who will be providing these loan terms and estimated mortgage payments to your buyer clients. They are the professional that keep up with various loan programs (e.g., VA, FHA, Conventional, Physician Loans, etc.) and each programs requirements. Therefore, it is important to meet good real estate lenders to be part of your real estate team.


Need more real estate math practice?

For more real estate math formulas and practice, get our 125 Real Estate Math Problems Solved Book. It covers 9 real estate math topics with full solutions and video explanations!

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