Five years ago, Diane secured a bank loan of $380,000 to help finance the purcha

Question

Five years ago, Diane secured a bank loan of $380,000 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 8% 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

Diane Morgage Loan Amount =$ 380,000 term 30 years interest =8%

monthly instalment payment =$ 2,788.31

after 5 years the amount of loan left unpaid = $ 361,265.12   

refinanced for 30 years at 7%

monthly payments at 7% interest= $ 2,403.51

$ 384.80 is reduced in monthly payments because of refinance.

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