Question

You can save a significant amount of mortgage interest paid if you make one additional principal and interest payment a year. This will reduce a 30-year mortgage by around 6 years. It also increases your equity in the home faster. If you choose to pay one additional mortgage payment a year by paying 1/12 of it each month (make certain to note the extra money is to reduce principal), how much will you pay each month for a mortgage of $152,000 at 3.5% for 16 years?

Answer 1

To calculate the monthly payment and the additional monthly amount for an extra yearly payment on a $152,000 mortgage at 3.5% interest for 16 years, use the amortizing loan formula. Convert the annual interest rate to monthly and the term to months, find the base monthly payment, and divide by 12 for the extra amount.

Step-by-step explanation:

Calculating Additional Mortgage Payment

To calculate the monthly payment for a mortgage of $152,000 at 3.5% for 16 years, and then determine the additional amount to pay each month if making an additional payment per year, we'll use the formula for an amortizing loan, which is:

M = P[r(1+r)^n] / [(1+r)^n-1]

Where:
M = monthly payment
P = principal amount
r = monthly interest rate
n = total number of payments

First, we convert the annual interest rate to a monthly rate by dividing by 12, and calculate the number of monthly payments for 16 years. Then we plug these values into the formula. Once we have the monthly payment, we divide that payment by 12 to find the additional amount to pay each month to make one extra payment per year.