Question

A couple took out a $390,000.00 mortgage ten years ago. The original terms called for 30 years of monthly payments at a 6.60% APR. The couple has made all payments over the last 10 years. Currently, the couple is considering re-financing their mortgage.

The couple has been offered a chance to re-finance their mortgage balance. The new mortgage will be for 30 years at the lower rate of 4.92% APR with monthly compounding. The mortgage will call for monthly payments.

1.What is the current balance on their existing mortgage?

2.What is the new monthly payment if the couple refinances?

3.How much will the couple save on monthly payments?

Answer 1

1.

Monthly Payment for existing loan is calculated in excel and screen shot provided below:

Monthly Payment on mortgage loan is $2,492.77.

Since, 10 year have already passed, so 20 year remains for repayment of loan. So, balance remains is present value of next 20 year payment. So, current balance on their existing mortgage is calculated in excel and screen shot provided below:

current balance on their existing mortgage is $331,452.02.

2.

at mortgage loan is refinanced for 30 year at 4.92%. So, Monthly payment after refinance is calculate din excel and screen shot provided below:

new monthly payment if the couple refinances is $1,763.14.

c.

Month Saving = $2,492.77 - $1,763.14

= $727.63

Monthly Saving after refinance is $727.63.