The Randall family is nearing the end of the first 5-year term on their mortgage. Monthly payments on the $420,000 mortgage were based on a 25-year amortization period and an interest rate of 6.8% compounded semiannually for the initial 5-year term. The Randalls are renewing the mortgage for another 5-year term, and are happy to learn their rate will drop to 3.8% compounded semiannually. Rather than reducing their monthly mortgage payments, the Randalls have decided to keep their payments the same as they paid during the first term of the mortgage. Assuming rates remain the same for the duration of the mortgage, by how long is the remaining amortization period reduced by the Randall’s decision not to reduce their monthly payments?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The Randall family is nearing the end of the first 5-year term on their mortgage. Monthly payments on the $420,000 mortgage were based on a 25-year amortization period and an interest rate of 6.8% compounded semiannually for the initial 5-year term. The Randalls are renewing the mortgage for another 5-year term, and are happy to learn their rate will drop to 3.8% compounded semiannually. Rather than reducing their monthly mortgage payments, the Randalls have decided to keep their payments the same as they paid during the first term of the mortgage. Assuming rates remain the same for the duration of the mortgage, by how long is the remaining amortization period reduced by the Randall’s decision not to reduce their monthly payments?

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