calculation of the interest and principal payments in a mortgage

[sharon]

HI David

are there any formulas to compute the interest payment part and the principal payment part in any part (month,year)
of the payment's?

what are your thought on the odds that it will be tested in the exam?

 

[David Harper CFA FRM]

Hi gizmo,

The only relevant (calculate) AIM (Fabozzi Chapter 1) is "Describe and calculate the mortgage payment factor. "
So the only assigned calculation is for the total (P&I) payment:
i.e., mortgage payment% = rate* factor / factor - 1, where factor = rate*(1+rate)^term

So, will they query the principal or interest component: NO.
In fact, they haven't yet queried the above P&I calculation and it's a little out of their style to do so, so I frankly consider even the above to have low testability (just my opinion/hunch)

In regard to: is there a formula, I don't really know (sorry!). If you have the balance, it's straightforward. In our example, 6% on $100K implies $500 monthly interest (monthly compoud frequency). So, interest on 1st = 500 and principal = payment% (above) * balance - interest. But, if you are trying to calc the n-th P or I, then sorry i don't know that formula (I am spoiled i guess by PPMT() and IPMT()!) but you definitely don't need to know that for the FRM. Hope that helps, David