Question

Martin has applied for a $234,800 mortgage. The amortization period is 20 yr. The interest rate is 6.3%. How much interest can Martin save by paying weekly instead of monthly? Use technology. Choose the closest answer.

a) $4,320
b) $5,100
c) $6,240
d) $7,500

Answer 1

Martin cannot save any interest by paying weekly instead of monthly.

Step-by-step explanation:

To calculate the amount of interest Martin can save by paying weekly instead of monthly, we need to find the total interest paid for the mortgage over the amortization period for both payment frequencies.

1. For monthly payments, the total interest paid can be calculated using the formula:
2. Total Interest = (Monthly Payment * Number of Payments) - Principal
3. For weekly payments, the total interest paid can be calculated using the formula:
4. Total Interest = (Weekly Payment * Number of Payments) - Principal
5. Subtracting the total interest paid for weekly payments from monthly payments gives us the amount of interest saved.

Let's calculate the total interest for both payment frequencies:

Monthly Payment = $234,800

Number of Payments (months) = 20 years * 12 months/year = 240

Principal = $234,800

Using the formula for monthly payments:

Total Interest (monthly) = ($234,800 * 240) - $234,800 = $56,35200 - $234,800 = $55,187.20

Now, let's calculate the weekly payment:

Weekly Payment = Monthly Payment / 4 (to convert monthly payment to weekly payment)

Weekly Payment = $234,800 / 4 = $58,700

Number of Payments (weeks) = 20 years * 52 weeks/year = 1040

Using the formula for weekly payments:

Total Interest (weekly) = ($58,700 * 1040) - $234,800 = $611,68000 - $234,800 = $376,880

To calculate the interest savings:

Interest Savings = Total Interest (monthly) - Total Interest (weekly)

Interest Savings = $55,187.20 - $376,880 = -$321,692.80

Therefore, Martin cannot save any interest by paying weekly instead of monthly.