Consider the following. Two mortgages are available for $500,000.00. Both are paid monthly, compounded quarterly have terms of 5 years and are amortized over 25 years. One has an interest rate of 3% however prohibits any prepayment, the other has an interest rate of 3.1% and allows for prepayment of 10% of the balance per year. If the borrower expects to make a lump sum payment at the end of each year of $400.00 which mortgage costs the least interest by the end of the term?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 15P
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Consider the following. Two mortgages are available for $500,000.00. Both are paid monthly, compounded quarterly have terms of 5 years and are amortized over 25 years. One has an interest rate of 3% however prohibits any prepayment, the other has an interest rate of 3.1% and allows for prepayment of 10% of the balance per year. If the borrower expects to make a lump sum payment at the end of each year of $400.00 which mortgage costs the least interest by the end of the term?
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