Eddie took out a 14-year loan for $72,000 at an APR of 4.7%, compounded monthly, while Lee took out a 14-year loan for $92,000 at an APR of 4.7%, compounded monthly. Who would save more by paying off his loan 6 years early? A. Lee would save more, since he has $20,000 more in principal. B. Lee would save more, since he has $20,000 less in principal. C. Eddie would save more, since he has $20,000 less in principal. D. Eddie would save more, since he has $20,000 more in principal.
Accepted Solution
A:
**Eddie: $72000/(14yr*12mo)=428.6$/mo+428.6$*(4.7%)/100% Eddie pays 428.6$/mo+20.14$/mo. If he pays off his loan 6 years earlier he would save: $20.14*6yr*12mo= $1450.08 **Lee: $92000/(14yr*12mo)=547.62$/mo+547.62$*(4.7%)/100% Lee pays 547.62$/mo+25.74$/mo. If he pays off his loan 6 years earlier he would save: $25.74*6yr*12mo=$1853.28
So its A. Lee would save more, since he has $20,000 more in principal.