The seller was told by the bank that she has a prepayment penalty due at the time of closing. The penalty is 6 months’ interest on the current loan balance. Based on 6% interest, her monthly payment is $569.57 principal and interest and her loan balance was $95,000 the month before closing. Once she makes her next monthly payment, how much will she owe in prepayment penalty at the time of closing?
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The prepayment penalty at the time of closing will be $2,850.
Given in the question that the seller had a prepayment penalty due at the time of closing. A month before closing her loan balance was $95,000. Interest is charged @6%. Monthly payment of $569.57 which includes principal and interest. The penalty is to be calculated on 6 months' interest on the current loan balance. To calculate the penalty, interest will be calculated on $95,000 @6% on 6 months =
= 95,000 * 6/100 * 6/12 = $2,850
Once she makes her next monthly payment, the prepayment penalty at the time of closing will be $2,850.
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