Five years ago, Diane secured a bank loan of $380,000 to help finance the purcha
ID: 2799500 • Letter: F
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
Current mortgage payment=PMT(8%/12,12*30,380000)=2788.31
Current outstnading balance=FV(8%/12,12*5,-2788.31,380000)=361265.46
Refinancing mortgage payment=PMT(7%/12,12*30,361265.46)=2403.51
Less payment=2788.31-2403.51=384.8
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