A loan with a balance of $210,000 prior to the June 1 payment was figured with interest at 5% annually and monthly principal and interest payments of $1,575. There was a 1% pre-payment penalty. The owner paid the June 1 payment and then paid off the balance of the loan. What was the pre-payment penalty?

1. $875
2. $2,093
3. $2,100
4. $2,107

2) $2,093 is the prepayment penalty.

Step-by-step explanation:

Given:

Principal amount= $210,000

Interest rate = 5%=0.05

Interest paid = (210,000 × 0.05) /12 months

Interest paid = $875

Amont paid in June = $(1575 - 875)

Amont paid in June = $700

Principal paid on the month of may=

(210,000 - 700)$ = 209,300

There is 1% payment delay= 209,300 × 0.01 = $2093

The prepayment penalty = $2,093