Question

Laverne took out a 26-year loan for $131,000 at an APR of 8.8%, compounded monthly, while Shirley took out a 26-year loan for $106,000 at an APR of 8.8%, compounded monthly. Who would save more by paying off her loan 15 years early?

Answer 1

Laverne would save more, since she has $25,000 more in principle.

Step-by-step explanation:

Answer 2

Please see explanation.

Step-by-step explanation:

Both the Laverne and Shirley will save significant amount of money, if they decide to pay the loan after 11 years instead of 26 years but the Laverne will save more than the Shirley because the loan taken by the Laverne is $25,000(131,000-106,000) more than the Shirley.

Other terms of the loan i.e. interest rate, compounding and loan maturity periods are same, therefore these other terms will not affect the savings to be made on early payments.