What interest rate would father earn by paying off

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Problem 1: Your father has asked your advice on the following problem. He has a mortgage loan on the family home that was made several years ago when interest rates were lower. The loan has a current balance of $40,000 and will be paid off in twenty years by paying $330 per month. He has discussed paying off the loan ahead of schedule with an officer of the bank holding the mortgage. The bank is willing to accept $36,000 right now to pay it off completely. What interest rate would your father earn by paying off the loan right now rather than making monthly payments for twenty years? Your father is currently earning 9 percent in his investments. Would it be worthwhile paying off the loan if he has the money available?

Reference no: EM132844299

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