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How much will you pay to retire a mortgage loan

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If you borrow $100,000 for a house using a 30-year loan at 3% interest, you will actually pay many thousands of dollars more than the amount borrowed by the time you have made your last payment.

Employing the concepts of time value and compounding, calculate the following:

1. How much will you pay to retire a mortgage loan of $100,000 over 30 years when the interest rate of the loan is 3%, and you make 12 payments per year? This is the true cost of your house.

2. If you make an extra payment every year (13 payments per year), how much will you pay on the same mortgage over 30 years?

3. By making this one extra payment per year, how much would you save? (#1 - # 2). That is, by how much would the true cost of your house be reduced?

Reference no: EM132465427

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