Question
In: Finance
The interest rate for the first three years of an $86,000 mortgage is 7.4% compounded semiannually....
|
The interest rate for the first three years of an $86,000 mortgage is 7.4% compounded semiannually. Monthly payments are based on a 20-year amortization. Suppose a $4500 prepayment is made at the end of the sixteenth month. |
| a. | How much will the amortization period be shortened? |
| The amortization period will be shortened by months. |
| b. |
What will be the principal balance at the end of the three-year term? (Round your answer to the nearest cent.) |
Solutions
Expert Solution
Nominal interest rate of 7.4% compounded semi annually is equal to 7.288430% compounded monthly as follows:
Monthly payments = $681.73 as follows:
Upon prepayment of $4,500 at the end of sixteenth month,
(a ): Revised amortization period= 217 months
Decrease in amortization period= 240-217= 23 months (1 year and 11 months)
(b ): Principal at the end of 3-year term=$ 74,528.55
Relevant portions of amortization schedule below:
jeff jeffy answered 2 years agoRelated Solutions
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