Question

A $200,000 mortgage at 6.6% compounded semiannually with a 25-year amortization requires monthly payments. The mortgage allows the borrower to prepay up to 10% of the original principal once each year. How much will the amortization period be shortened if, on the first anniversary of the mortgage, the borrower makes (in addition to the regular payment) a prepayment of:
a.	$10,000? (Do not round the intermediate calculations.)
	The amortization period will be shortened by	months.

b.	$20,000? (Do not round the intermediate calculations.)
	The amortization period will be shortened by	months.

Answer 1

Effective annual rate of interest	6.71%
Monthly interest (Rate)	0.54%
Present Value	$200,000
NPER	300
PAYMENT	$1,351.79
NPER	288
RATE	0.54%
PAYMENT	$1,351.79
Present Value after first anniversary	$196,703.32
Repayment	$10,000
Present Value after repayment	$186,703.32
NPER	255.743
Amortization period shortened	32.257
Amortization period shortened by 32 Months
Present Value after first anniversary	$196,703.32
Repayment	$20,000
Present Value after repayment	$176,703.32
NPER	228.288
Amortization period shortened	59.712
Amortization period shortened by 60 Months