# Northern Virginia Community College Paying Extra Principal on a Mortgage Case Study

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Vybirsbbq4

Mathematics

Northern Virginia Community College

## Description

Ive provided the worksheet as well as the directions attached to this!

Procedure:In our brief case study, we assume the Thomas and Jefferson families have identical mortgages (30-year term, fixed-rate 6% APR, and a loan amount of \$175,000). The Thomas family will not pay extra but the Jeffersons will. Follow the steps below prior to your analysis.

1.Using the Payment mini calculator of the Financial Toolboxes spreadsheet, calculate the mortgage payment (the same for both families).

2.Assume that the Thomas’s will make only the required mortgage payment. The Jeffersons, however, would like to pay off their loan early. They decide to make the equivalent of an extra payment each year by adding an extra 1/12 of the payment to the required amount.Calculate the following to find what they plan to pay each month:

a.1/12 of the required monthly payment

b.Jeffersons monthly payment found by adding this 1/12 to the required payments

3.The Thomas’s will take the full 30 years to pay off their loan, since they are making only the required payments. The Jefferson’s extra payment amount, on the other hand, will allow them to pay off their loan more rapidly.

Use the Years mini financial calculator of the Financial Toolbox spreadsheet to calculate the approximate number of years (nearest 10th) it would take the Jeffersons to pay off their loan.

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Name:

Ilovefood4_______

A Case Study of Paying Extra Principal on a Mortgage

1.

Required Monthly Payment = \$

__1,049.213_________

2.
a. 1/12 of the required monthly payment = \$ ____87.434_______
b. By adding this 1/12 to the required payments, the Jeffersons plan to pay
\$ _____1,136.647______each month.
3.

Number of years to pay off loan = ___________12. 830 years________________

Thomas Family
Rates
0%
1%
2%
3%
4%
5%
6%
7%
8%

1/12th of Monthly Payment 1,049
Annuity Amount in 360 Months

0.00
10.49
20.98
31.47
41.96
52.45
62.94
73.43
83.92

Jefferson Family
Rates
0%
1%
2%
3%
4%
5%
6%
7%
8%

Monthly Payment + Extra 1/12th 1,136
Annuity Amount in 360 Months

0.00
11.36
22.72
34.08
45.44
56.80
68.16
79.52
90.88

1. What assumptions may not necessarily be valid for a typical family regarding both the loan rate and
savings plan rate?
The cash equivalent at a particular period for all future savings that could be assumed...

### Review

Anonymous
Very useful material for studying!

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