Five years ago, Diane secured a bank loan of $310,000 to help finance the purcha
ID: 2595501 • Letter: F
Question
Five years ago, Diane secured a bank loan of $310,000 to help finance the purchase of a loft in the San Francisco Bay area. The term of the mortgage was 30 years, and the interest rate was 10% per year compounded monthly on the unpaid balance. Because the interest rate for a conventional 30-year home mortgage has now dropped to 7% per year compounded monthly, Diane is thinking of refinancing her property. (Round your answers to the nearest cent.)
(a) What is Diane's current monthly mortgage payment?
$
(b) What is Diane's current outstanding balance?
$
(c) If Diane decides to refinance her property by securing a 30-year home mortgage loan in the amount of the current outstanding principal at the prevailing interest rate of 7% per year compounded monthly, what will be her monthly mortgage payment? Use the rounded outstanding balance.
$
(d) How much less would Diane's monthly mortgage payment be if she refinances? Use the rounded values from parts (a)-(c).
$
Explanation / Answer
Answer : (a) Let ‘x’ be the current monthly mortgage payment
Therefore, x*(PVAF 0.833%, 360 months) = $310,000
x*113.9892 = $310,000
x = $310,000/113.9892 = $2,720
(b)
therefore current outstanding balance is $309,305
(c) Let ‘x’ be the current monthly mortgage payment
Therefore, x*(PVAF 0.5833%, 300 months) = $309,305
x*141.492 = $309,305
x = $309,305/141.492 = $2,186
(d) Difference in the monthly mortgage payment = $2,720 - $2,186
= $534
Time Opening balance Interest @0.00833% (i.e.10%/12months) Installment Closing balance 5 yr ago 310000 2583 2720 309863 4yr ago 309863 2582 2720 309726 3yr ago 309726 2581 2720 309587 2yr ago 309587 2580 2720 309446 1yr ago 309446 2579 2720 309305 current year 309305Related Questions
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