Seven years ago, you took out a 30 year mortgage loan to buy a home (thus is has
ID: 2815822 • Letter: S
Question
Seven years ago, you took out a 30 year mortgage loan to buy a home (thus is has 23 years left). The mortgage requires monthly payments of $1355.00 and has an APR of 6% (APR, compounded monthly). Now you have decided to refinance with a new 30 year mortgage loan with monthly payments and an APR of 6.6% (compounded monthly). a) What are the required payments on the new loan? b)If you wish to pay of the new mortgage in 23 years instead of 30, what monthly payments should you make after the refinance?
Explanation / Answer
Before refinancing:
Monthly Payment = $1,355
Annual Interest Rate = 6.00%
Monthly Interest Rate = 0.50%
Remaining Period of Loan = 23 years or 276 months
Loan Outstanding = $1,355 * PVIFA(0.50%, 276)
Loan Outstanding = $1,355 * (1 - (1/1.005)^276) / 0.005
Loan Outstanding = $1,355 * 149.511
Loan Outstanding = $202,587.41
Answer a.
Annual Interest Rate = 6.60%
Monthly Interest Rate = 0.55%
Remaining Period of Loan = 23 years or 276 months
Loan Outstanding = $202,587.41
Monthly Payment * PVIFA(0.55%, 276) = $202,587.41
Monthly Payment * (1 - (1/1.0055)^276) / 0.0055 = $202,587.41
Monthly Payment * 141.8067 = $202,587.41
Monthly Payment = $1,428.62
Answer b.
Annual Interest Rate = 6.60%
Monthly Interest Rate = 0.55%
Remaining Period of Loan = 16 years or 192 months
Loan Outstanding = $202,587.41
Monthly Payment * PVIFA(0.55%, 192) = $202,587.41
Monthly Payment * (1 - (1/1.0055)^192) / 0.0055 = $202,587.41
Monthly Payment * 118.3905 = $202,587.41
Monthly Payment = $1,711.18
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