Mortgage loan on the family home

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Reference no: EM131450190

Your father has asked your advice on the following problem. He has a mortgage loan on the family home that was made several years ago when interest rates were lower. The loan has a current balance of $40,000 and will be paid off in twenty years by paying $330 per month. He discussed paying off the loan ahead of schedule with an officer of the bank holding the mortgage. The bank is willing to accept $36,000 right now to pay off the loan completely. What interest rate, expressed as an annual rate, would your father earn by paying off the loan now rather than making the monthly payments for twenty years? If your father is currently earning 9 percent on his investments, should he pay off the loan?

Reference no: EM131450190

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