Mortgage Calculations

one of life's few certainties, in addition to death and taxes, is that you should buy real estate, whenever possible, with other people's money. The other people may be banks, insurance companies, private lenders, or the property sellers themselves. Just avoid lenders who disburse funds from the trunks of their cars.

The money is loaned most often in the form of a mortgage—an interest-bearing note secured by the property and repaid typically in equal monthly installments.

Because mortgage financing is an integral part of real estate investing, there are probably no calculations performed more often than those that pertain to such financing. It's a rare transaction that doesn't cause you to ask, "what will it take to service the debt? How much interest will I pay? How much will I owe when I sell?"

The typical amortized mortgage is structured as something called an ordinary annuity. That's a series of regular, equal amounts disbursed at the end of each payment period. Four variables are involved in any mortgage calculation: the principal amount (or PV), the periodic interest rate, the number of payment periods, and the payment amount.

You can calculate the monthly payment using a mathematical formula that is about a yard and a half long. The author will take the liberty of assuming that you'd rather go directly to the simpler methods.

First, turn to the Appendix in the back of the book where you will find the first page of a table called, "Monthly Mortgage Payment per $1." The rest of the table can be found at The chart runs from 1% to 14.375%, and from 1 to 30 years in one-year increments. The following is a segment of that table.

Monthly Mortgage Payment per $1—Mortgage Constant







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