A young couple buying their first home borrows $72,000 for 28 years at 8.8%, compounded monthly, and makes payments of $577.59. After 2 years, they are able to make a one-time payment of $5,000 along with their 24^th payment. How much will the couple save over the life of the loan by paying the extra $5,000? Round your answer to the nearest dollar.

Question

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By making the extra payment of $5,000 after 2 years, the couple will save a significant amount of interest over the life of the loan. To calculate the total savings, we need to find the total amount of interest that would be paid with and without the extra payment and then subtract the two.

Without the extra payment, the couple would make 336 payments of $577.59, for a total payment of $194,189.04. The total amount of interest paid over the life of the loan would be $122,189.04.

With the extra payment, the couple would make 335 payments of $577.59 and one payment of $5,000, for a total payment of $194,766.45. The total amount of interest paid over the life of the loan would be $88,778.45.

The difference in total interest paid is $33,410. Therefore, the couple will save $33,410 by making the extra payment. The answer is choice C.

A Young Couple Buying Their First Home Borrows $72,000 for 28