(Please Please Very Important include all keystrokes and calculator input) A 30
ID: 2694789 • Letter: #
Question
(Please Please Very Important include all keystrokes and calculator input) A 30 year mortgage loan was made 5 years ago for 200,000 at 5%. The borrower, John Doe, is now considering paying off that loan by refinancing at a lower rate. What would be the payoff balance of the loan at the end of the fifth year ? If John Doe were to obtain a new 30 year mortgage for the balance on above, what would the new payment be at a rate of 3.5%? What would the payment be for the balance on above, if john Doe wanted the new loan based on the same remaining term as his original loan ?Explanation / Answer
The PV of 25 payments of 200k each at 5%, present = 200000 * ( 1 - 1.05^-25)/0.05 = 2818788.89
The payoff balance of the loan at the end of the fifth year = 2818788.89
Let the yearly payment of new 30 year mortgage be A,
then 2818788.89 = A * ( 1 - 1.035^-30) / 0.035 = 153261.31
Payment at 5% be B
2818788.89 = A * ( 1 - 1.05^-30) / 0.05 =183366.26
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