Compound Interest – Mortgages Welcome to another BA II Calculator series

on compound interest, and today we are going to look at mortgages. Well, quite simply a mortgage, is we are buying

a house and we have to pay off the loan of the mortgage, and this is how we are going

to do it. With mortgages we can either compute the N

for number of payments, or the PMT for the payment size itself. Just depends on what the question is asking

us. Once we have done that, depending on how long

the term is supposed to last, we might have to do a second calculation to figure out the

payments for the next term of our mortgage. So, we will use the amortization function

to figure out how much is left owing on the mortgage after the first term is done. Okay, you have just purchased a house that

has a mortgage of $200,000. You are going to be making payments at the

end of each month for the whole 25 year mortgage period. If the interest rate is 4.9% per month for

the first 5 years, how much would your monthly payments be? So, at the bottom of the question here, the

question is asking how much are you monthly payments, so how much is PMT? Let’s go back to the top and start working

our way through the question and start picking out the information we need. So, first thing we talk about is the mortgage

itself, so we have a mortgage of $200,000. Mortgage is like a loan, so this is another

word for PV. So 200,000 here , this is PV. You are going to be making the payments at

the end of each month, so the end of each month. So your calculator needs to be in end mode,

which it should always be set in end mode unless you switch it to begin. You can watch a video how to switch your calculator

to begin to end mode, and how to switch back from begin mode to end mode. Our payments begin at the end of the month

so this is our PY, for the whole 25 year mortgage. So we are going to use the 25 for RN. If the interest rate is 4.9% per month, s

our IY, for the first 5 years, so you can see this interest rate is only going to be

for 5 years, however the whole 25 year term. So that means we will have to do a second

question where the interest rate will be different for the next 5 years. Okay, let’s set up our row of buttons. So the first thing is our mortgage is 200,000,

so that’s our present value. You are going to be making payments at the

end, and my calculator is already in end mode. Each month, so PY is 12, for the whole 25

years, so even though this interest rate is 4.9% for the first five years, the mortgage

itself is for 25 year term. So 25 years times the 12 is 300. This is how many payments we are going to

be making over the whole life of the mortgage. And, so when you calculate N, N has to be

based on the total life of the mortgage, not just how many years the first interest rate

is going to be. The interest rate is 4.9, we are looking for

payments, future value is going to be zero, and the compounding is per month. So CY is per month. Okay, so let’s turn the calculator on, so

300 N, 4.9 IY, 200,000 PV, zero FV, and we will go into our second function IY, I have

set my calculator to PY as 12 and if I scroll down my CY is also 12, and remember, if it

is not 12 already, enter 12. And then down. And then we go 2nd quite to get out, and then

we go CPT PMT, so compute payment, so our mortgage is going to be $1157.56 per month

for the first five years. I know we used 300 as payment, but these are

our payments for the first 5 years because our interest rate is 4.9% at this time. Now, in the second question, it says: if you

had renewed your mortgage at 5.1% per month for the next 5 years how much would your payments

be now? So what we want to do is we need to figure

out the present value after we just finished doing the first 5 years of payments at the

original amount that we just calculated here in our calculator at $1157.57. so to do that we are going to go back into

our amortization function, so we are going to go 2nd amort, 2nd PV, and in this function

we now have to figure out how many payments we are going to make in those 5 years. So that 5 years, and the payments were once

a month, or 12 times a year, so we would make 60 payments total. So, that means for P1 we want to set 60, and

P2 we want to set 60, and then we want to scroll to the balance. If you can’t remember how to use your amortization

function you can watch the video on the amortization function. So I am going to go 60 and 60 and scroll to

my balance. And again it just takes a few seconds for

the calculator to compute that, and I get $176, 876.42. This balance will become our present value

in our next calculation. So let’s just go back to the top of the

question, read through it and pull the information out. The first thing we have here is this 5.1 this

is going to be our new IY, again it’s per month so CY will remain 12. Now I know it says for the next 5 years, the

mortgage was 25 years in total. So when it comes time to doing my N, what

we need to do is subtract and figure out how many payments are actually left in the 25

year period. So, we started with 25 years in total, we

just finished the first 5, so there are 20 years remaining. We are going to make a payment once a month

for 12 times a year so there are 240 payments remaining for our N. Let’s just get out

of this, so go 2nd quit, so there is our N, 240 N, the IY is the 5.1, the PV is now the

$176,876.42, and I am just going to make sure there is zero FV, payment is what we are looking

for. PY and CY are going to remain at 12 each. We should check to make sure they are 12 and

12. 2nd quit, and the CPT PMT. And our new payments are $1177.10. Now this is just the size of our new payments,

we are not quite done yet because the question says: how much would your monthly payments

be now. We are done. Ok, we’re done. These are our new payments. $1177.10. This has been another presentation of the

Wise Guys Videos. If you have any problems please contact Ron

at the Learning Assistance Center. Thank you, have a good day.

i keep getting -9,8000.01 as the answer when following your instructions for the first example..advice?

Wouldn't you change the interest rate from NOM to EFF first? Because the question stated 4.9% per month. Please let me know I am trying to learn how to do this and I am a big fan of your videos.

Thanks so much for this.

ME TOO!!! im getting that answer as well!

You basically have to set your calculators to P/Y to 12 before hand and then do the problem. It works after that. =)

I don't know what formula he is using lol

Is this required for the 'agent' exam ?? , the book said advanced mortgage calculations not required for exam.

Thanks for the vid but man was did it take long to get to the point…

Thanks a lot

240p…. we meet again