Question

Charlene took out a 25-year loan from her bank for $115,000 at an APR of 4.8%, compounded monthly. If her bank charges a prepayment fee of 6 months' interest on 80% of the balance, what prepayment fee would Charlene be charged for paying off her loan 8 years early? Show your work.

Answer 1

$1017.014 is the answer.

Explanation:

Principle amount = $115000

Per month payment is = $658.95 per month

Amount still owed after 17 years(25-8=17) = $52,442.26

Prepayment fee = (0.8*52,442.26)*(1.004^6 - 1) = $1017.014

Hence, Charlene will pay a prepayment fee of $1017.014 for paying off her loan 8 years early.