Question

You just took a fixed-rate mortgage for $250,000 at 4.50% for 30 years, monthly payments, two discount points. Before you make any payments you receive a nice raise so you plan to pay an extra $160 per month on top of your normal payment.
A. (1 pt) How many monthly payments do have to make at the higher payment to fully amortize the loan?
B. (1 pt) What is your net interest savings over the life of the loan, assuming the loan is held to its maturity?
C. (1 pt) If you make this higher payment and hold the loan for its full life, what is the effective cost of the loan?

Answer 1

Formulas Used:-

	Mortgage Amount	250000
	Rate (Monthly)	=4.5%/12
	Tenure In months	360
	Discount Point	0.02
A.	Monthly Payment	=PMT(C2,C3,-C1*(1+C4))
	Extra payment	160
	New Tenure (Months)	=NPER(C2,-C6-C7,C1*(1+C4))
B.	Net Interest Saving	=(C3*C6)-((C6+C7)*C8)
C.	Effective Cost of Loan (Annual)	=RATE(C3,-C6-C7,C1*(1+C4))*12