Real Estate Math
A Colorado homeowner makes extra principal payments of $200/month on their 30-year, $350,000 mortgage. Approximately how much sooner will they pay off the loan compared to making regular payments only? (Assume the extra payments reduce the term significantly.)
AA. 2 years sooner
BB. Approximately 5-7 years sooner (the exact result depends on the interest rate and amortization schedule)✓ Correct
CC. Only 6 months sooner
DD. The extra payments have no effect on the term
Explanation
Extra principal payments reduce the outstanding balance faster, which reduces the remaining interest and shortens the loan term. On a 30-year $350,000 mortgage, additional $200/month principal payments (depending on the interest rate) can reduce the term by approximately 5-7 years.
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