Question

It’s been exactly five years since Mr. Smith bought his house with a 30-year mortgage which had an interest rate of 9.00% (APR, monthly compounding). The outstanding balance of the current mortgage is $178,799.01. In the intervening five years, interest rates have fallen and so Mr. Smith has decided to refinance the remaining balance on his current mortgage with a new 32-year mortgage which has monthly payments and an interest rate of 5.7% (APR, monthly compounding). How much would the monthly payments on the new mortgage be? Round off your answers to two decimal points.   

Answer 1

- Current balance of mortgage = $178,799.01

Interest rates have fallen so Mr Smith refinance the loan on the current outstanding balance with a new 32-year mortgage with monthly payment.

Interest rate = 5.7% compounded monthly

Calculating the monthly payments:-

Where, P = Loan Amount = $178,799.01

r = Periodic Interest rate = 0.057/12 = 0.00475

n= no of periods = 32years*12 =384

Monthly Payment = $ 1013.57

So, Monthly Payment on the new mortgage is $ 1013.57

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