(Q. 10 IN B) IF $300,000 IS BORROWED FOR A HOME MORTGAGE AT A POSTE...

5. (Q. 10 in B) If $300,000 is borrowed for a home mortgage at a posted rate of 7% (APR semi-annually compounded), how much interest can be saved over the life of the mortgage by agreeing to a 20-year amortization period, rather than a 25-year amortization period? A) $23,400 B) $62,800 C) $76,471 D) $80,715 Solution C The monthly interest rate is given by: (1 + i

m

)

¹²

= 1 + EAR = (1 + 3.5%)² = 1.0712250, that is i

m

= 0.5750% The monthly payment for the 20-year loan