Question

Paying 13 mortgage payments instead of 12 per year can save to you thousands in interest cost. If you had a $175,000 mortgage at 6% for 30 years, how much extra would you have to pay per year to make 13 instead of a 12 mortgage mortgage payments per year? How much would you pay if you paid 1/12 of it per month? 

Answer 1

For Option 1: 13 mortgage payments:

The mortgage amount is $175,000.

Divide the amount of mortgage by $1,000:

Here look for 30 under term in year column. Go across to 6%. At the intersection is the table factor, 6.00.

Hence, the monthly payment is.

Formula for calculating total cost of interest:

Thus,

For Option 2: 12 mortgage payments:

The mortgage amount is $175,000.

Divide the amount of mortgage by $1,000:

Here look for 30 under term in year column. Go across to 6%. At the intersection is the table factor, 6.00.

Hence, the monthly payment is.

Formula for calculating total cost of interest:

Thus,

Thus, the extra amount that you would have to pay per year to make 13 instead of 12 mortgage payments per year is.

You would pay if you paid of the extra amount per month.

Answer 2

$87.50 is the right answer $175,000/1,000=175 175 x $6.00 =$1,050 $1,050/12 = $87.50