Question: A $75,000 mortgage loan at 9% compounded semiannually has a 5-year term and a 25-year amortization. Prepayment of the loan at any time within the

A $75,000 mortgage loan at 9% compounded semiannually has a 5-year term and a 25-year amortization. Prepayment of the loan at any time within the first five years leads to a penalty equal to the greater of
a. Three months’ interest on the balance.
b. The difference between the fair market value of the mortgage and the balance.
What would be the amount of the penalty if the balance was paid out just after the nineteenth monthly payment and the prevailing rate on three-year and four-year-term mortgages was 8% compounded semiannually?

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