A couple took out a $379,000.00 mortgage ten years ago. The original terms calle

Question

A couple took out a $379,000.00 mortgage ten years ago. The original terms called for 30 years of monthly payments at a 6.60% APR. The couple has made all payments over the last 10 years. Currently, the couple is considering re-financing their mortgage.

The couple has been offered a chance to re-finance their mortgage balance. The new mortgage will be for 30 years at the lower rate of 4.08% APR with monthly compounding. The mortgage will call for monthly payments.How much will the couple save on monthly payments?

Explanation / Answer

Step 1 compute balance remaining after 10 year that is 10×12=120 payment since payment are monthly

Using Financial Calculator

PV=-379000

N=360 [30×12=360 since payment in 30 years is monthly Payment]

I/Y=6.6/12=0.55

FV=0

Press CPT + PMT

PMT=2420.52

Now press 2nd +PV

P01=120 [ Press Scroll Down key]

P02=120 [ Press Scroll Down key]

Balance=322103.38

Step 2 Compute new monthly payment at finance cost of 4.08%

Using Financial Calculator

PV=-322103.38

N=360 [30×12=360 since payment in 30 years is monthly Payment]

I/Y=4.08/12=0.34

FV=0

Press CPT + PMT

PMT=1552.66

New Monthly Payment=1552.66

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