Mortgages are annuities in that a fixed monthly payment is made to the lender (assume end of month payments and an interest rate that compounds semi-annually).Sara is planning to take on a mortgage of $100 000 and believes she can afford monthly payments up to $700.How much interest would she save if she decided to pay off her mortgage over 20 years,rather than over 25 years? Her mortgage is at five percent interest calculated semi-annually.
A)$42 000
B)$18 120
C)$34 896
D)$16 776

Question

Quizplus · Accepted Answer

The interest saved by paying off the mortgage over 20 years instead of 25 years is calculated by finding the total interest paid over each period and then finding the difference. The total interest paid over 25 years is higher than over 20 years, and the difference is $16,776.

Mortgages Are Annuities in That a Fixed Monthly Payment Is