You are considering two payment options on a $500,000 20-year mortgage having an interest rate of 2.8% compounded monthly. The ﬁrst option is to make monthly payments at the start of each
Month, while the second option is to make payments at the end of each month. How much interest
Will be saved by choosing the ﬁrst option?

Question

Quizplus · Accepted Answer

The first option is to make monthly payments at the start of each month, which means the interest is calculated on the full amount of the loan for the entire month. The second option is to make payments at the end of each month, which means the interest is calculated on the remaining balance of the loan for the month. Since the first option has the interest calculated on the full amount of the loan for the entire month, it will result in more interest being paid over the life of the loan. Therefore, choosing the first option will save interest compared to the second option.

You Are Considering Two Payment Options on a $500,000 20-Year