According to money.CNN.com, with mortgage rates near 35-year lows, you may be able to cut your payments sharply by refinancing your loan. To qualify for the best rates, you need a credit score of 740 or higher and usually at least 20% equity. Even if you have to settle for a higher rate, a new loan may save you money. The main consideration is whether you will live in your home long enough to offset the refinance closing costs. Your current mortgage payment is $1,558.50 per month, with a balance of $219,800. Suppose you have a chance to refinance at a certain bank with a 30-year, 5.75% mortgage. The closing costs of the loan are application fee, $80; credit report, $165; title insurance, 0.4% of the amount financed; title search, $360; and attorney's fees, $570. You plan to live in your home for at least four more years. Use the Mortgage Refinancing Worksheet to see if it makes sense to refinance your mortgage. A guided mortgage refinancing worksheet. The first line states "Step 1. Current monthly mortgage payment," and has an empty box on the right side. The second line states "Step 2. New monthly mortgage payment, if you refinance," and has an empty box on the right side. The third line states "New rate" followed by a blank space, and "Current mortgage balance," followed by another blank space. The fourth line states "Table 14-1 factor," followed by a blank space, "times number of 1000s to borrow," followed by another blank space, followed by an arrow which points up to the empty box on the second line. The fifth line states "Step 3. Monthly savings," and has an empty box on the right side. The sixth line states "Step 1.," followed by a blank space, "minus Step.2," followed by another blank space, followed by an arrow which points up to the empty box on the fifth line. The seventh line states "Step 4. Total refinance closing cost (appraisal, title search, etc.)," and has an empty box on the right side. The eighth line states "Step 5. Total months needed to recoup your cost," and has an empty box on the right side. The ninth line states "Step 4 result ÷ Step 3 result," followed by an arrow which points up to the empty box on line eighth line. The tenth line states "Step 6. Total months you plan to live in your home," and has an empty box on the right side. The eleventh line states "The Bottom Line- If you plan to live in your home longer than the result in Step 5, it makes sense to refinance." (a) What is your currently monthly mortgage (in $)? $ (b) Using this table, what is your new monthly mortgage payment (in $) if you decide to refinance? (Round your answer to the nearest cent.) $ (c) What is your monthly savings (in $) if you decide to refinance? (Round your answer to the nearest cent.) $ (d) Calculate the total refinance closing cost (in $). (Round your answer to the nearest cent.) $ (e) How many months would you need to recoup the refinance closing cost? (Round your answer up to the nearest month.) months (e) How many months are you planning to live in your home? 3 months (g) If you're planning to live in your home for at least four more years, does it make sense to refinance your mortgage? Yes, it makes sense to refinance. No, it does not make sense.

According to money.CNN.com, with mortgage rates near 35-year lows, you may be able to cut your payments sharply by refinancing your loan. To qualify for the best rates, you need a credit score of 740 or higher and usually at least 20% equity. Even if you have to settle for a higher rate, a new loan may save you money. The main consideration is whether you will live in your home long enough to offset the refinance closing costs. Your current mortgage payment is $1,558.50 per month, with a balance of $219,800. Suppose you have a chance to refinance at a certain bank with a 30-year, 5.75% mortgage. The closing costs of the loan are application fee, $80; credit report, $165; title insurance, 0.4% of the amount financed; title search, $360; and attorney's fees, $570. You plan to live in your home for at least four more years. Use the Mortgage Refinancing Worksheet to see if it makes sense to refinance your mortgage. A guided mortgage refinancing worksheet. The first line states "Step 1. Current monthly mortgage payment," and has an empty box on the right side. The second line states "Step 2. New monthly mortgage payment, if you refinance," and has an empty box on the right side. The third line states "New rate" followed by a blank space, and "Current mortgage balance," followed by another blank space. The fourth line states "Table 14-1 factor," followed by a blank space, "times number of 1000s to borrow," followed by another blank space, followed by an arrow which points up to the empty box on the second line. The fifth line states "Step 3. Monthly savings," and has an empty box on the right side. The sixth line states "Step 1.," followed by a blank space, "minus Step.2," followed by another blank space, followed by an arrow which points up to the empty box on the fifth line. The seventh line states "Step 4. Total refinance closing cost (appraisal, title search, etc.)," and has an empty box on the right side. The eighth line states "Step 5. Total months needed to recoup your cost," and has an empty box on the right side. The ninth line states "Step 4 result ÷ Step 3 result," followed by an arrow which points up to the empty box on line eighth line. The tenth line states "Step 6. Total months you plan to live in your home," and has an empty box on the right side. The eleventh line states "The Bottom Line- If you plan to live in your home longer than the result in Step 5, it makes sense to refinance." (a) What is your currently monthly mortgage (in $)? $ (b) Using this table, what is your new monthly mortgage payment (in $) if you decide to refinance? (Round your answer to the nearest cent.) $ (c) What is your monthly savings (in $) if you decide to refinance? (Round your answer to the nearest cent.) $ (d) Calculate the total refinance closing cost (in $). (Round your answer to the nearest cent.) $ (e) How many months would you need to recoup the refinance closing cost? (Round your answer up to the nearest month.) months (e) How many months are you planning to live in your home? 3 months (g) If you're planning to live in your home for at least four more years, does it make sense to refinance your mortgage? Yes, it makes sense to refinance. No, it does not make sense.

Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)

7th Edition

ISBN:9780357033609

Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk

Chapter5: Making Automobile And Housing Decisions

Section: Chapter Questions

Problem 8FPE

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Question

Even if you have to settle for a higher rate, a new loan may save you money. The main consideration is whether you will live in your home long enough to offset the refinance closing costs.

Your current mortgage payment is $1,558.50 per month, with a balance of $219,800. Suppose you have a chance to refinance at a certain bank with a 30-year, 5.75% mortgage. The closing costs of the loan are application fee, $80; credit report, $165; title insurance, 0.4% of the amount financed; title search, $360; and attorney's fees, $570.

You plan to live in your home for at least four more years. Use the Mortgage Refinancing Worksheet to see if it makes sense to refinance your mortgage.

A guided mortgage refinancing worksheet.

The first line states "Step 1. Current monthly mortgage payment," and has an empty box on the right side.
The second line states "Step 2. New monthly mortgage payment, if you refinance," and has an empty box on the right side.
The third line states "New rate" followed by a blank space, and "Current mortgage balance," followed by another blank space.
The fourth line states "Table 14-1 factor," followed by a blank space, "times number of 1000s to borrow," followed by another blank space, followed by an arrow which points up to the empty box on the second line.
The fifth line states "Step 3. Monthly savings," and has an empty box on the right side.
The sixth line states "Step 1.," followed by a blank space, "minus Step.2," followed by another blank space, followed by an arrow which points up to the empty box on the fifth line.
The seventh line states "Step 4. Total refinance closing cost (appraisal, title search, etc.)," and has an empty box on the right side.
The eighth line states "Step 5. Total months needed to recoup your cost," and has an empty box on the right side.
The ninth line states "Step 4 result ÷ Step 3 result," followed by an arrow which points up to the empty box on line eighth line.
The tenth line states "Step 6. Total months you plan to live in your home," and has an empty box on the right side.
The eleventh line states "The Bottom Line- If you plan to live in your home longer than the result in Step 5, it makes sense to refinance."

(a)

What is your currently monthly mortgage (in $)?

(b)

Using this table, what is your new monthly mortgage payment (in $) if you decide to refinance? (Round your answer to the nearest cent.)

(c)

What is your monthly savings (in $) if you decide to refinance? (Round your answer to the nearest cent.)

(d)

Calculate the total refinance closing cost (in $). (Round your answer to the nearest cent.)

(e)

How many months would you need to recoup the refinance closing cost? (Round your answer up to the nearest month.)

months

(e)

How many months are you planning to live in your home?

3 months

(g)

If you're planning to live in your home for at least four more years, does it make sense to refinance your mortgage?

Yes, it makes sense to refinance. No, it does not make sense.

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