You have a mortgage balance of $110,000 that will require you to make 120 more p

Question

You have a mortgage balance of $110,000 that will require you to make 120 more payments of $1,100 , starting next month. Alternatively, you can take out a loan today for $110,000 with an interest rate of 3% APR compounded monthly and pay off the original mortgage. The new loan will require you to make 120 more payments, starting next month. If your investments earn 5.00% APR, compounded monthly, how much will you save in PV terms by taking out the new loan to pay off the original mortgage? $3,567 $3,497 $3,674 $3,463

Explanation / Answer

Hence, correct option is $3,567

PV of $1,100 payments per month $      103,709 =PV(5%/12,120,-1100) Less: PV of new loan repayments $      100,143 =PMT(3%/12,120,-110000)*PV(5%/12,120,-1) Amount saved in PV terms $ 3,567

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