Question
Professor Elmtwig makes a monthly payment of $1600 on his mortgage. The original term of the mortgage is for 30 years at 3.75% interest compounded
Professor Elmtwig makes a monthly payment of $1600 on his mortgage. The original term of the mortgage is for 30 years at 3.75% interest compounded semi-annually. His lender suggests that if he makes bi-weekly payments of $800, it will reduce how long it will take to pay off the mortgage. Answer the following questions for 3 points each.
a) How much did Professor Elmtwig originally borrow?
b) How much faster will the mortgage be paid off if Elmtwig makes the bi-weekly payments (26 payments per year)? HINT: You may use the formula to solve for N, but the TVM functions on your calculator will be much faster. Express your answer in terms of years (to two decimal places).
c) Is paying $800 bi-weekly the same as paying $1600 monthly? Why or why not? (HINT: How many payments per year?)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started