By Admin on Feb 29, 2008 in Mathematics
Myra asked:
Kim and Karl purchased a home for $135,000. They made a down payment of $20,000 and took out a mortgage on the balance with an annual interest rate of 8% compounded monthly for 30 years. After 5 years they had the opportunity to refinance with an annual interest rate of 6.5% compounded monthly for 20 years.
Kim and Karl purchased a home for $135,000. They made a down payment of $20,000 and took out a mortgage on the balance with an annual interest rate of 8% compounded monthly for 30 years. After 5 years they had the opportunity to refinance with an annual interest rate of 6.5% compounded monthly for 20 years.
a.) What was their monthly payment on the 30-year mortgage?
b.) What did they owe after 5 years of payments?
c.) What is their new monthly payment?
d.) If they had not refinanced, how much interest would they have paid on the last 25 years of the 30-year mortgage?
e.) How much interest will they pay on the 20-year mortgage?
f.) If they paid $2500 for fees to refinance, was it a good choice for them to refinance? Why or why not?
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A proper answer to this involves calculations; you can use a financial calculator, or a site such as realtor.com to do the dirty work. The answer to f depends on whether they expect to stay put for the next twenty years or so, or how much less; if the full term, they would be better off doing the re-fi.
rhsaunders | Mar 2, 2008 | Reply
a: 30 yr mtg pmt on $115,000 at 8% is $ 843.43
b: After 5 years of payments they owe: $ 109,330.34
c: 20 yr mtg pmt on $109,330.34 at 6.5% : $ 815.14
d: 25 remaining years interest: $ 143,698.66
e: interest on the 20 year loan: $86,302.69
f: Yes, because the the difference in interest from the remaining 25 years to the 20 years was a savings of $57,395.97
Wouldn’t you pay $2,500 to save $57,395.97 ???
dioncornel | Mar 6, 2008 | Reply