Question

College question: Suppose you have $165000 30 year mortgage at 6.12% interest compounded monthly. For 5 years, you only pay the monthly payments required. at the end of the 5th year, you have the option to refinance your home with a new 30 eyar mortgage that has an interest rate of 5.15% compounded monthly. Answer the following:

A. If you refinance current mortagage with new mortgage, find new monthly payment.
(for this question i got $9077.1267, but i want to make sure if thats correct)

B. If you were to refinance the current mortgage with the new mortgage, how much money would you save, or

Answer 1

or lose, in interest with this new mortgage*

Answer 2

By monthly payment required, do you mean required to pay off the interest for the month? If so, then the monthly payments in the first five years are $841.50. Forty of those monthly payments comes to $33,660. Throughout the first five years the principal remains fixed at $165,000.

Answer 3

okay sooo if i refinance is the nwe monthly payment 9077.12?

Answer 4

if you figure this out could you show me what you input in your tvm solver?

Answer 5

That looks way too high a monthly payment if the initial principal mere $165,000. This is the formula that I am using:\[M = (P _{o}r/m) (1 + r/m)^{n + 1}/((1 + r/m)^{n} - 1)\]

Answer 6

In the formula, P(0) is the initial principal = $165,000,
r is the annual interest rate = .0515,
m is the number of payments made per year = 12, and
n is the total number of payments = 360.

Answer 7

That cranks out to $904.81 for the monthly payments under the refinance plan.

Answer 8

360 of those monthly payments add up to $325,731.53. When you add the $33,660 for the first five years the total cost to you is $359,931.53.

Answer 9

If you do not refinance and continue with the original plan , you would make 360 payments of $841.50 tor a total of $302,940

Answer 10

We need to compare where you wuold be un 35 years under plan A versus under plan B. Under plan A, you make a total of 360 payments of $841.50 for a total of $302,940.
Now the thirty years is up and your note is due and payable. You pay the principal in full, $165,000. and the house is yours free and clear. Total cost: %467,940.

Answer 11

If you refinance, you save $108,008.47

Answer 12

\[M = (P _{o} r/m)(1 + r/m)^{n} /((1 + r/m)^{n} - 1)\]
The formula I presented earlier is too big by a factor of (1 + r/m). The interest-only mortgage still costs you $467,940. The total cost of the thirty-five year plan will be slightly reduced using the revised formula.

Answer 13

If you refinance at the end of five years, you will have made sixty payments of $841.50 for a total of $50,490. The new monthly payment is $900.9433. You make 360 payments at that amount, bringing the total cost of plan B to $374,829.58. Refinancing is less costly than staying with the interest-only mortgage by $93,110.42.