Oppenheimer Bank is offering a 30-year mortgage with an APR of 4.96% based on mo

Question

Oppenheimer Bank is offering a 30-year mortgage with an APR of 4.96% based on monthly compounding. With this mortgage your monthly payments would be $2,020 per month. In addition, Oppenheimer Bank offers you the following deal: Instead of making the monthly payment of $2,020 every month, you can make half the payment every two weeks (so that you will make 52/2-26 payments per year). With this plan, how long will it take to pay off the mortgage if the EAR of the loan is unchanged? The number of payments will be which is approximately years. (Round to two decimal places and enter the years rounded to the nearest whole number.)

Explanation / Answer

First calculate the loan amount:

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate = 4.96/12 =

              0.413333

PMT =

-$2,020.00

N = Number of years remaining x frequency =

360

FV = Future Value =

$0.00

CPT > PV = Present value of loan =

$378,008.40

Now, we can calculate the period:

Using financial calculator BA II Plus - Input details:

#

FV = Future Value =

$0.00

PV = Present Value of loan =

-$378,008.40

I/Y = Rate / Payment frequency in a year = 4.96/26 =

0.1907692308

PMT = Payment = 2020/2 =

$1,010.00

CPT > N = Total number of payments =

                        657

Convert in years = N / Payment frequency in a year = 657/26 = Years =

                          25

The number of payments will be 657, which is approximately 25 years

Using financial calculator BA II Plus - Input details:

#

I/Y = Rate = 4.96/12 =

              0.413333

PMT =

-$2,020.00

N = Number of years remaining x frequency =

360

FV = Future Value =

$0.00

CPT > PV = Present value of loan =

$378,008.40

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