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Assume that you have graduated from College and are a practicing CPA. One of your clients, Karen Sharpley, a practicing surgeon comes to you for consulting services. On your advice, Karen had refinanced her mortgage when interest rates were extremely low into a fixed rate, 15 year 4.6% annual interest rate instead of buying a mansion for $1.2 million with an adjustable rate mortgage and no money down.
Karen's monthly payments (principal and interest) are currently $2,485.16 per month. She has regularly been prepaying the principal balance on her mortgage and currently owes $ 262,413.43.

Karen has received a raise and has some extra money available each month. She would like to know whether she should pay down her mortgage by adding $500 per month to each payment or whether she should invest the $500 into mutual funds.

A.) How long will it take Karen to pay off the mortgage if she pays only the normal principal and interest payment?

B.) How long will it take Karen to pay off the mortgage if she pays the extra $500 per month to the mortgage?

C.) Assuming that Karen could earn 6% on any extra money that she invests, write her a business letter outlining the pros and cons of her choices along with any other relevant factors that she should consider in making this decision.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9987167

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