Definition of "Annuity factor"

Joan OBrien real estate agent

Written by

Joan OBrienelite badge icon

RE/MAX Town & Valley

The annuity factor definition is the use of a financial method that shows the value, present or future, of an amount when it is multiplied by a periodic amount. The calculation of an annuity factor requires the number of years involved, or the periodic amount, and the percentage rate applicable. The most often used for annuity factors are investments with either or both an annual payment or return. Typical examples of annuity factors being applied are savings accounts, certain types of insurances, or retirement savings plans.

The annuity factor meaning is a particular type of accumulating discount factor used to determine the present or future value of annuities, as well as equated installments. Another name for annuity factors is the annuity formula, and we’ll get into that momentarily.

The Present Value Annuity Factor

The present value annuity factor allows you to determine the amount of money required at the present time in order to result in a future series of payments assuming a fixed interest rate is applied.

In order to reach the present value annuity factor, a formula is used that discounts a future value amount to the present value amount through the use of the applicable interest rate. The period of time during which the investment will last is also taken into account to reach the correct value.

The Present Value Annuity Formula

Annuity factor formula


C=cash flow per period

i = interest rate

n = number of payments

The Future Value Annuity Factor

The future value annuity factor gives access to the final return value of a series of regular investments taking into account their worth at a future time, usually at the end of the investing period, assuming that a fixed interest rate is applied.

To reach the future value annuity factor, the formula above is slightly altered in order to add the values collected over the years by also accounting for the set interest rate.

The Future Value Annuity Factor

Annuity factor formula 1


C=cash flow per period

i = interest rate

n = number of payments

Applying the Annuity Factor formulas:

Considering an investment with an annual $2,000 payment over the course of five years at an interest rate of 5%, let’s see what the present and future value would be.

Annuity factor formula 3

 Annuity factor formula 4

The previous formulas can help you determine the present and future values of ordinary annuities. While the math might seem complicated, there are financial calculators online that can help you out with the correct inputs and data.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.


Popular Real Estate Terms

Any walls constructed without using concrete or mortar. Drywall materials include sheetrock, gypsum, plywood, Styrofoam, and pressed fiver. See also drywall construction. ...

An insect, such as a termite, that "eats into" the wood and destroys it. This can cause significant damage to the home. Most states have laws that require termite inspection and ...

Word, or group of words, that identifies a business or one of its products. The name is registered with U.S. Patent Office and provides legal protection for an indefinite number of renewals ...

Also called real property. Anything permanently affixed to the land, such as buildings, walls, fences, and shrubs, as well as the rights to own or use them. It is distinguished from ...

Projecting what the total cost would be to construct a structure. Costs include material, labor, and lawyers' fees. ...

Square footage of space a parcel of land has. ...

Geographical area for which a given governmental agency has authority and responsibility. For example, the jurisdiction of a county court is the county in which it is located. ...

Adding a period of time onto another. An examples a mortgagor who successfully restructures his loan by tacking another five years onto the term. ...

Exposure can have various meanings in real estate and insurance, depending on the context. Let’s have a thorough look at these scenarios! Exposure as property’s ...

Popular Real Estate Questions