We finished the previous chapter (Section 14) with the discussion about paying off a mortgage. In general, banks allow their clients to overpay their mortgages, which should be beneficial to the borrowers. So here is a task for you.
Write a computer program, that will estimate the savings you make by overpaying a mortgage (assume the whole overpayment goes to pay off the principal and reduces the number of installments).
Use the program to answer a few questions.
How much money can you expect to save in the case of mortgage1 ($200,000, 6.49%, 20 years) and mortgage2 ($200,000, 4.99%, 30 years) (see Section 14.2) if you overpay them regularly every month with $200.
For mortgage1 which one is more worth it: to overpay it every month with $200 or to overpay it only once, let’s say in month 13, with $20,000?
Which scenario would you expect to give you more profit (in nominal value): to overpay mortgage1 with $20,000 in month 13, or to put this $20,000 into a bank deposit that pays 5% yearly for the 19 years (roughly the remaining duration of the mortgage)?