You have a 30-year, $160,000 mortgage. The interest rate is 4.75%. If you decide to pay $1,000 as your first payment, by how much will you prepay your mortgage?

Question

Quizplus · Accepted Answer

The first payment of $1,000 on a 30-year, $160,000 mortgage at 4.75% interest would primarily go towards interest. To calculate the interest for the first month, use the formula: (Interest Rate/12) * Principal. This equals (0.0475/12) * 160,000 = $633.33. Subtracting this interest from the $1,000 payment leaves $366.67 to go towards the principal. Since a standard payment would be less than $1,000, the prepayment amount is the difference between $1,000 and the sum of the first month's interest plus the standard principal payment. Given the choices, the closest to the calculated prepayment towards the principal is $165.36, which suggests a misunderstanding in the calculation process. The correct approach should focus on the exact prepayment calculation, but given the options and the typical structure of mortgage payments, the initial calculation error led to selecting $165.36 as the closest match under the assumption of a standard payment scenario.

You Have a 30-Year, $160,000 Mortgage