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mr and mrs spirit purchased a 35 000 house 20 years ago they took a 30 yearmortgage 723441

Mr. and Mrs. Spirit purchased a $35,000 house 20 years ago. They took a 30 yearmortgage for $30,000 at a 3% annual interest rate. Their bank, the First AmityvilleNational Bank, has recently offered the Spirits two alternatives by which theycould prepay their mortgage. The Spirits have just made their 20th annualpayment.[A] Under the first alternative, the Spirits could prepay their mortgage at a 30% discountfrom the current principal outstanding. If current 10 year mortgage rates are 12%, should the Spiritsaccept the offer? Ignore taxes and assume payments are made at the end of each year (instead ofmonthly).[B] The second alternative would replace their existing mortgage with a five year zero interestloan, in the amount of their current mortgage’s principal outstanding. This new loan was to be repaidin 5 equal annual payments. The banker pointed out that this option would “save them well over$2,000 in interest.”Which alternative, if either, should the Spirits pursue?

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