Mortgages Are Annuities in That a Fixed Monthly Fixed Amount

question 32

Multiple Choice

Mortgages are annuities in that a fixed monthly fixed amount to the lender (assume monthly payments and an interest rate that compounds semi-annually) .Sara is planning to take on a mortgage of $100 000 and believes she can afford monthly payments up to $700.How much interest would she save if she decided to pay off her mortgage over 20 years,rather than over 25 years? Her mortgage is at five percent interest calculated semi-annually.

• A)$42 000
• B)$18 120
• C)$34 896
• D)$16 776

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Definitions:

Interest Rates

Interest rates represent the cost of borrowing money, expressed as a percentage of the loan amount, paid by the borrower to the lender for the use of funds.