Robert and Cora feel like they will live in their home forever. They are conside

Question

Robert and Cora feel like they will live in their home forever. They are considering refinancing their home. Robert and Cora were told by a mortgage broker that they would qualify for a 3.8% rate on a 15 year or 4% on a 30-year mortgage. Provide an analysis showing the pros and cons of each decision. Remember to look at financial ratios. Remember that Robert and Cora are very visual learners. Assume that refinance costs are $5,500 and will be rolled into the new loan. 3.The Crawley would like to know your recommendations on an approach to get out of debt. They have told you that all options are on the table in terms of cutting expenses, but they are not sure how to put together a payoff plan or which debt to attack first. Please use powerpay.org and provide some recommendations for paying off all of their debts. Please provide an amortization sheet of the payoff plan. Please explain your strategy. 4.Robert and Cora are concerned if they have adequate insurance for their auto, home and life. They have a split limit policy of $50k/$100k/$50 for liability limits and $500 deductibles, but they don't understand what this really means. Robert and Cora also have their home insured 100% of its actual cash value and they have replacement cost coverage on their property. They would like you to explain to them what these numbers mean and provide guidance if needed. 5.Robert and Cora might receive a settlement in the amount of $800,000. Robert and Cora want to know how to make sure their money is protected from a bank failure and that the money stays extremely liquid. Please help educate Robert and Cora on the FDIC.

Explanation / Answer

Question1:The analysis of option 1 is as calculated below:

The anyaisis depends on how much of the loan is remaining. Let us assume that they have $100,000 on the home loan remaining

So the new loan amount = 100,000 + 5500 (refinancing cost ) = 105,500

For the 3.8% loan for 15 years

So the monthly payment will now be at =pmt(rate,nper,pv) where rate = 0.038/12, nper =15*12 = 180 and pv = 105,500

So monthly payment will be =pmt(0.038/12,180,105500) = 769.84

So total loan payment = 769.84 * 180 = 138,571.20

For the 4% loan for 30 years

So the monthly payment will now be at =pmt(rate,nper,pv) where rate = 0.04/12, nper =30*12 = 360 and pv = 105,500

So monthly payment will be =pmt(0.04/12,360,105500) = 503.67

So total loan payment = 503.67* 360 = $181,321.12

Since the total loan amount is lower in the first part, you will choose the 3.8% loan for 15 years. Although the monthly payment is higher, the total loan amount is lower which makes it a better option

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