Question

You have a home loan of $150,000. The interest rate is 5.5% and the loan is for 30 years, with monthly payments. If you make a ONE TIME extra principle payment of $22,000 in period number 18, how much do you SAVE in total interest paid of the life of the loan? A. $22,000 B. $48,814 C. $35,712 D. $61,492

Answer 1

PV	150000
Rate	0.46%	(5.5%/12)
NPER	360	(30x 12)
EMI	$851.68
	=PMT(5.5%/12,360,-150000)
Since EMI is paid for 360 months, tital payment in 360 months will be;
	(360 x 851.68)
	$                                    306,604.80
Less:	$                                          150,000	Loan Amount
	$                                    156,604.80	Interest Paid
Now come to second situation, where $22000 is paid in 18th period
Principal outstanding at end of 18th period
	($146,926.10)
	=PV(5.5%/12,342,851.68)
New principal outstanding after payment of $22000 will be $124,926.10
New time period to pay off the loan with existing EMI of $851.68 will be
	243.968	Months
Total payment with new plan:
	851.68 x (18+243.968) + 22000 =	$ 245,112.91
Less:		$ 150,000.00	Loan Amount
		$    95,112.91	Interest Paid
Savings in interest (156604.80-95112.91) = 61492			Ans D