Kimberly bought a house 10 years ago for $375,000. She made a 15% down payment a

Question

Kimberly bought a house 10 years ago for $375,000. She made a 15% down payment and amortized the remaining amount at 6.1% interest compounded monthly for 30 years.

a. How much is her monthly mortgage payments?

b. How much would she end up paying for the house after the 30 year loan is complete?

c. What is the approximate remaining balance right now, after making 10 years of payments? ( B = R [ (1-(1+i)^-(n-x)) / i ] )

d. Assume she decides to refinance the house right now. To do this the loan company charges $4,000 in fees (which is added to the amount of the loan from part c above). If she amortizes the remaining balance (including the fee) at 3.2% interest compounded monthly for 15 years, what will be the monthly payment?

e. If she continues this loan for 15 years and finally pays it off, how much did she end up paying for the house?

f. How much money (if any) did she save by refinancing?

Explanation / Answer

A
The effective monthly rate is 6.1/12 = 0.50833 = 0.51%

Amount of Loan taken = Value of House - Down payment
= 375,000 - 375,000*15%
= 318750

Let the monthly payment be 'M'
Thus,
AMount of Loan = P.V. of future payments
318750 = M*PVA(0.51%,30*12)
318750 = M*165.0186
M = 1931.6

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