hus: A young engineer obta has to pay 240 morem she inquires about the the bank

Question

hus: A young engineer obta has to pay 240 morem she inquires about the the bank charges an orig bank and the engineer agro refinanced mortgage, what attractive, if the new mortgag er obtained a mortgage for $150,000 at 12% annual interest. She - 10 more monthly payments of $1,543. As interest rates are going down, about the conditions under which she could refinance the mortgage. If ses an origination fee of 2% of the amount to be financed, and if the ngineer agree that the fee will be paid by combining the fee with the gage, what interest rate would make refinancing her mortgage the new mortgage terms require 120 payments?

Explanation / Answer

Solution:-

The amount to be refinanced:

i = 12/12 = 1%

a) PW of 120 monthly payments left = 1543 (P/A, 1%, 240) =1543*90.819= $140,133.71

b) New loan fee (2%) =140,133.71 (.02) = $28026.74

? Total amount to refinance = $140,133.71 + $28026.74

= $168160.45

The new monthly payments are: ANEW = 168160.45 (A/P, i, 120)

The current payments are: AOLD = 1543

We want ANEW < AOLD

Substituting

? 168160.45 (A/P, i, 120) < 1543

(A/P, i, 120) < 1543/168160= 0.009

For i = ¼% (A/P, ¼%, 120) = 0.009

This corresponds to a nominal annual percentage rate of 12 × 0.25 = 3%

Interest rates less than 3% would make refinancing her mortgage more attractive .

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