Question

Nancy is thinking about paying off her mortgage loan early. She looked at the loan contract and found that her lender charges a pre-payment fee based on a percentage of interest paid within six months. The lender charges 80% of six months' interest. Nancy's mortgage has $50,000 remaining, and she pays 6% interest. How much would she owe in penalty fees?

Answer 1

Nancy would owe penalty fees of $200 for paying her mortgage loan early.

Step-by-step explanation:

To calculate the penalty fees that Nancy would owe for paying her mortgage loan early, we first need to find the amount of interest paid within six months. Since the interest rate is 6% annually, the monthly interest rate is 6% / 12 = 0.5%. The interest paid within six months is 0.5% * $50,000 = $250.

The lender charges 80% of six months' interest as a pre-payment fee. Therefore, Nancy would owe penalty fees of 80% * $250 = $200.