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• Consider a mortgage with a balance of $250,000, that carries a 4% fixed-rate interest and...

• Consider a mortgage with a balance of $250,000, that carries a 4% fixed-rate interest and has 20 years remaining to maturity. Would you benefit in any way from making an extra payment of $100 each month on the mortgage? Explain in detail please.

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Answer #1

Balance on mortgage(PV) = $ 250,000

Rate = 4% = 4%/12 per month

Time to maturity (nper) = 20*12 = 240 periods

Monthly payment (PMT) = = $ 1,514.95

Now, if the monthly payment is increased by $ 100, New Monthly payment = 1514.95 + 100= $ 1614.95

So, PMT = 1614.95

rate = 4%/12

Time to maturity(nper) =  = 218.07 months = 18.17 years

So, by increasing the mortgage by $ 100, the maturity period is decreased from 20 years to 18 years. So you can finish off the mortgage payments earlier.

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