Frank purchased his house 16 years ago by taking out a 25-year mortgage for $150,000. The mortgage has a fixed interest rate of 5 percent compounded monthly. If he wants to pay off his mortgage today, how much money does he need? He made his most recent mortgage payment earlier today.

Question

Quizplus · Accepted Answer

To find the remaining balance on the mortgage, we calculate the present value of the remaining payments. Frank has 9 years left on his mortgage (25 - 16 = 9 years), which is 108 months. The monthly interest rate is 5%/12 = 0.4167%. Using the formula for the present value of an annuity, the remaining balance is approximately $76,132.52.

Frank Purchased His House 16 Years Ago by Taking Out