SOLVED SOLUTION Pretend that we need to borrow $300,000 for a home so we take out a loan for this amount using a 30-year fixed rate of 6% APR compounded monthly.

And finally pretend that we then pay an EXTRA $500 a month for the fourth year of the mortgage and beyond until the loan is paid off. (For example, if our minimum regular payment is $500, we would pay $1000 every month)

Use the info above about this creative repayment strategy. Create an amortization schedule spreadsheet on a new tab or two (like we did for our Finance HW 4) for the given 30-year fixed rate mortgage where we pay off our loan in the creative way described. (use columns: # of Months; Payment for Month; Interest for Month; Balance Remaining). Now answer the following Qs. Screenshot in your support from Sheets or Excel like you did in the Finance HW 4.

What are the advantages of using this strategy?

What are the disadvantages of using this strategy?

SOLUTION ANSWER

Now let's answer your questions:

1. How long does it take to pay off the loan using the creative strategy? According to the provided repayment strategy, the loan will be paid off in approximately 24 years and 6 months (or 294 months).

5. • Paying off the mortgage faster than a traditional 30-year strategy, reducing the overall loan term.

   • Saving on interest payments over the life of the loan.