A borrower makes their regular payment plus an additional $1,000 toward principal on the first payment of their 30-year mortgage. Approximately how much total interest will this save over the life of the loan at 5% interest?
Correct Answer
C) About $3,000-4,000
When an extra principal payment is made on the very first payment, it saves interest on that $1,000 for the entire remaining loan term. At 5% interest over nearly 30 years, the compound effect means the borrower saves approximately $3,000-4,000 in total interest payments. The exact amount depends on the loan terms, but early principal payments have a dramatic long-term impact.
Why This Is the Correct Answer
When an extra principal payment is made on the very first payment, it saves interest on that $1,000 for the entire remaining loan term. At 5% interest over nearly 30 years, the compound effect means the borrower saves approximately $3,000-4,000 in total interest payments. The exact amount depends on the loan terms, but early principal payments have a dramatic long-term impact.
More Mortgage Knowledge Questions
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A borrower asks about the difference between discount points and origination fees. What is the most accurate explanation?
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