A borrower took out a 30-year fixed-rate mortgage of $2,250,000 at a 7.2 percent annual rate. After five years,he wishes to pay off the remaining balance. Interest rates have by then fallen to 7 percent. How much must he pay to retire the mortgage (to the nearest dollar)?

Question

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The borrower must pay off the remaining balance of the mortgage, which is calculated based on the original loan amount, interest rate, and the time period that has elapsed. This involves calculating the remaining balance after 5 years of payments on a 30-year fixed-rate mortgage at a 7.2% annual rate. The calculation is complex and typically requires the use of a financial calculator or an amortization formula. The correct answer, $2,122,426, accounts for the interest paid over the first 5 years and the reduction in the principal balance during that time. The change in market interest rates to 7% does not affect the payoff amount for the original mortgage.

A Borrower Took Out a 30-Year Fixed-Rate Mortgage of $2,250,000