Suppose you take out a 30 year mortgage for $ 175000 at 9% interest. The monthly
ID: 2715555 • Letter: S
Question
Suppose you take out a 30 year mortgage for $ 175000 at 9% interest. The monthly payments on this loan are $ 1408.09.
If you pay an extra 10% per month on your mortgage, how soon will you pay off the loan?
New length in years =
How much will you save in interest by making the extra payments?
Saving =
If you put $ 1408.09 per month into an annuity earning 10.25% interest compounded monthly for the remaining time on your original loan, how much money will you have at the end of the original 30 years?
Extra savings =
Explanation / Answer
Suppose you take out a 30 year mortgage for $ 175000 at 9% interest. The monthly payments on this loan are $ 1408.09.If you pay an extra 10% per month on your mortgage, how soon will you pay off the loan?
No of month = nper(rate,pmt,pv,fv)
rate = 9%/12 = 0.75%
pmt = 1408.09*(1+10%) = $ 1548.90
pv = -175000
fv = 0
No of month loan is repaid = nper(0.75%,1548.90,-175000,0)
No of month loan is repaid = 251.58
New length in years = No of month loan is repaid /12
New length in years = 251.58/12
New length in years = 20.96
New length in years = 21 Years approx
How much will you save in interest by making the extra payments?
Saving = Total Payment in normal monthly payment - Total Payment in extra 10% per month
Saving = (1408.90*30*12)- (1548.90*21*12)
Saving = $ 116,881.20
If you put $ 1408.09 per month into an annuity earning 10.25% interest compounded monthly for the remaining time on your original loan, how much money will you have at the end of the original 30 years?
Extra savings = fv(rate,nper,pmt,pv)
rate = 10.25%/12
nper = (30-21)*12 = 108
pmt = 1408.09
pv = 0
Extra savings = fv(10.25%/12,108,1408.09,0)
Extra savings = $ 248,219.90
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