Your client has a 12%, 20-year-mortgage on her home. The original amount of the

Question

Your client has a 12%, 20-year-mortgage on her home. The original amount of the loan was $175,000 when it was taken out exactly 7 years ago. Mortgage interest rates have fallen significantly, and your client thinks she could refinance the unpaid balance of the old loan at 8% for 13 years. She would have to pay two “points” as part of the refinancing costs, but these could be paid as part of the new loan, rather than in a lump sum. Based on this information, answer the following questions. (Your answer may differ slightly from those shown due to differences in rounding).
If your client goes ahead with the refinancing, approximately how much of her first new monthly mortgage payment will be for interest?
   $1,044
   $1,113
   $1,161
   $1,319
   $1,352

Explanation / Answer

FIrst find the cummulative principal and cummulative interest paid for the above laon for first 7 years. we use

cumipmt and cumppmt formuale in excel.

cumipmt(rate,nper,pv,start period,emd period,type)

here rate= 12%/12=1% nper= 20*12=240 pv=$175,000 start period =1 and end period= 7*12 =84

CUMIPMT(1%,240,-175000,1,84,0)=$135,637

cumppmt(1%,240,-175000,1,84,0)=24,620

principal portion remaining= 175000-24620=$150,380

for the above amount we need to add 2% refinancing oct so total new loan =1 .02*150,380=$154,922

use ipmt formuale to find interest part of first payment

=IPMT(8%/12,1,(13*12),154922,0)=$1032.81

Option A

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