A couple took out a $398,000.00 mortgage ten years ago. The original terms calle

Question

A couple took out a $398,000.00 mortgage ten years ago. The original terms called for 30 years of monthly payments at a 6.84% 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.

What is the new monthly payment if the couple refinances?

Answer Format: Currency: Round to: 2 decimal places.

Explanation / Answer

Actual monthly payments = (Loan * rate) / (1 - (1+rate)-number of payments)

rate = 6.84%/12 = 0.57%

number of payments = 30*12 = 360

PMT = (398000*0.57%) / (1- (1+0.57%)-360) = 2605.28

Current loan balance = 2605.28*(1-(1+0.57%)-240) / 0.57% = 340236.86

new loan

rate = 4.08%/12 = 0.34%

number of payments = 30*12 = 360

PMT = (340236.86*0.34%) / (1- (1+0.34%)-360) = 1640.07

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