Question

The mortgage on your house is five years old. It required monthly payments of ​$1,402, had an original term of 30​ years, and had an interest rate of 10%​(APR). In the intervening five​ years, interest rates have fallen and so you have decided to refinancethat ​is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a​ 30-year term, requires monthly​ payments, and has an interest rate of ​6.625%(APR). a. What monthly repayments will be required with the new​ loan? b. If you still want to pay off the mortgage in 25​ years, what monthly payment should you make after you​ refinance? c. Suppose you are willing to continue making monthly payments of . How long will it take you to pay off the mortgage after​ refinancing? d. Suppose you are willing to continue making monthly payments of ​, and want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the​ refinancing? ​(Note: Be careful not to round any intermediate steps less than six decimal​ places.)

Answer 1

Answers:

a.)

PMT=$1402	PV=$154,286.70
Annual Rate=0.8333% (10/12)	Annual Rate=0.55208% (6.625/12)
Periods=300 (25*12)	Periods=360 (30*12)
PV= $154,286.70	PMT=$987.91

b.)

PV=$154,286.70

Annual Rate=0.55208%

Periods=300

PMT=$1053.83

c.)

PV=$$154,286.70

PMT=$1402

Annual Rate=0.55208%

Periods=170 Months (14 years and 2 Months)

d.)

PMT=$1402

Annual Rate=0.55208%

Periods=300

PV=$205,259.98

$205,259.98-$154,286.70 = $50,973.28