PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
6th Edition
ISBN: 9781337117005
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Chapter 5, Problem 12FPE
REFINANCING A MORTGAGE. USE WOR
SHEET 5.4. Lily Nguyen purchased a condominium four years ago for $200,000, paying $1,250 per month on her $162,000, 8 percent, 25-year mortgage. The current loan balance is $152,401. Recently, interest rates dropped sharply, causing Lily to consider refinancing her condo at the prevailing rate of 6 percent. She expects to remain in the condo for at least four more years and has found a lender that will make a 6 percent, 21-year, $152,401 loan, requiring monthly payments of $1,065. Although there is no prepayment penalty on her current mortgage, Lily will have to pay $1,500 in closing costs on the new mortgage. She is in the 15 percent tax bracket. Based on this information, use the mortgage refinancing analysis form in Worksheet 5.4 to determine whether Lily should refinance her mortgage under the specified terms.
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Jia Ma purchased a condominium 5 years ago for $160,000, paying $1,174.75 per month on her $146,000, 9 percent, 30-year mortgage. The current loan balance is $139,985. Recently, interest rates dropped sharply, causing Jia to consider refinancing her condo at the prevailing rate of 7 percent. She expects to remain in the condo for at least 5 more years and has found a lender that will make a 7 percent, 25-year, $139,985 loan, requiring monthly payments of $989.38. Although there is no prepayment penalty on her current mortgage, Jia will have to pay $1,000 in closing costs on the new mortgage. She is in the 15 percent tax bracket. Based on this information, use the mortgage refinancing analysis form in Worksheet 5.4 to determine whether she should refinance her mortgage under the specified terms. Assume that Jia is assumed to take the standard deduction.
She refinance her mortgage under the specified terms.
You have been asked to determine whether it is beneficial for a homeowner to refinance their current mortgage loan. Their loan for 200,000 was originated three years ago and was a 30 year FRM with an interest rate of 7.5%. Their mortgage payment is currently $1,398.43. This loan now currently has 27 years remaining, and the homeowner is looking to refinance their current balance (i.e. the balance at the end of month 36) into a new 27 year FRM with an interest rate of 5.5%. How much will the homeowner save in interest over the 27 years remaining, assuming no prepayments? Round to the nearest dollar.
12
When Jane and Patrick Baker were “house hunting” five years ago, the fixed rate on a 30- year mortgage was 6% APR (Nominal Interest Rate) with monthly compounding. After walking through many homes, they finally reached a consensus and decided to buy a $500,000 home. The couple decided to put 20% down payment and took the 30-year mortgage with monthly payments.
What is Jane and Patrick’s monthly mortgage payment?
Construct an amortization schedule in excel for the loan.
During the first 5 years, how much has the couple paid towards the mortgage?
What proportion of this was applied toward interest? What is the balance on their loan today?
Chapter 5 Solutions
PFIN (with PFIN Online, 1 term (6 months) Printed Access Card) (New, Engaging Titles from 4LTR Press)
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