Note: You can use any financial calculator to do this problem, but if you want the BEST, you can get our 10bii Financial Calculator for iPhone/iPad, Android, Mac, Windows 8.1/10,

and Windows 7!

**THE SCENARIO**

Several years ago I borrowed some money to buy a condo. Today, still owe $66,924.65 on this mortgage, with payments of $352.16 per month, at a rate of 3.875%.

If I suddenly came into a pile of money and decided to pay off this mortgage today, how much interest would I avoid paying over the remaining life of the mortgage by doing so?

For simplicity, assume that there’s no partial-month interest to satisfy and no pre-payment penalties involved.

**THE SOLUTION**

This problem is a three-stepper.

- The first thing we need to do is figure out how many payments are left on the mortgage.
- Then we need to figure out how much the total payments over that number of months would have been.
- Then we need to subtract the amount I’d pay today to satisfy the mortgage from the total payments I’d make if I didn’t pay off the mortgage today.

Let’s get to it.

Step 1:

First things first, make sure the calculator is using 12 Payments per Year.

N: (this is what I’m trying to find)

I/YR: 3.875

PV: 66,924.65

PMT: -352.16

FV: 0

When I plug these numbers into the calculator, I find that I have 295 payments left to make on this mortgage.

Step 2:

If I paid off the mortgage today, I’d avoid 295 payments, each of which is $352.16.

295 months times $352.16 per month is $103,887.20 I can avoid paying over the next 25ish years by paying $66,924.65 today.

Step 3:

I owe $66,924.65 which means any amount I pay above that is interest on the loan. My payments will add up to $103,887.20 so the amount of interest I’ll be paying on the loan over time will be $103,887.20 – $66,924.65 which is a total of **$36,962.55**. If I pay off the loan now, I’ll save **$36,962.55** in interest over time.

Note that doing this problem doesn’t tell me whether it’s a *good idea* to pay off the mortgage today, it just tells me how much interest I’d save if I decided to do so.