Question

Arthur took out a 20 year loan for $60,000 at an APR of 4.4% compounded monthly. Approximately how munch would save if he paid it off 3 years early Apex A. $4516.32,B. $1129.08,C. $376.36,D.$877.96

Answer 1

Monthly payments, P = {R/12*A}/{1- (1+R/12)^-12n}

Where R = APR = 4.4% = 0.044, A = Amount borrowed = $60,000, n = Time the loan will be repaid

For 20 years, n = 20 years
P1 = {0.044/12*60000}/{1- (1+0.044/12)^-12*20} = $376.36

Total amount to be paid in 20 years, A1 = 376.36*20*12 = $90,326.30

For 3 years early, n = 17 year
P2 = {0.044/12*60,000}/{1-(1+0.044/12)^-12*17} = $418.22

Total amount to be paid in 17 years, A2 = 418.22*17*12 = $85,316.98

The saving when the loan is paid off 3 year early = A1-A2 = 90,326.30 - 85,316.98 = $5,009.32

Therefore, the approximate amount of savings is A. $4,516.32. This value is lower than the one calculated since the time of repaying the loan does not change. After 17 years, the borrower only clears the remaining amount of the principle amount.

Answer 2

It's $877.96 on APEX, taking the quiz currently.