Concept explainers
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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- Your friend has just purchased a house and has incurred a $150,000, 4.5% mortgage payable at $760.03 per month. After making the first monthly payment, he receives a statement from the bank indicating only $197.53 had been applied to reducing the principal amount of the loan. Your friend then calculates that at the rate of $197.53 per month, it will take 63 years to pay off the $150,000 mortgage. Discuss and explain whether your friend’s analysis is correct or not.arrow_forwardPlease show how to solve questions a. and b. using an excel spreadsheet, and please show the excel formulas. Carly decides to buy a house with price of $450,000. Carly puts 20% down payment and consider a 30-year fixed rate mortgage to pay the remaining balance. The lender offers Carly two choices of the mortgage with monthly payments in the table provided. Suppose that the origination cost is $6,000. a. If Carly holds the loan for 30 years, what is the effective cost for each choice? b. How about the effective cost for each choice if the loan will only be outstanding for 5 years (60 months) (the borrower will pay off the loan at the end of 60 months)?arrow_forwardMia Sato purchased a new condominium for $225,000. The bank required a $40,000 down payment. Assume a rate of 6% on a 30-year mortgage. What is Mia’s monthly payment? What is Mia's total interest cost if she pays each payment as scheduled for 30 years? Explanation of how to determine the solution to the problem and the correct answer, please.arrow_forward
- 5. Erin borrowed $200,000 fixed-rate 30-yr mortgage when mortgage rate was 4.5%. How much total interest will she pay if she does not pay off the mortgage earlier? She heard that some house buyers choose to make one extra monthly payment each year so as to pay off their mortgage earlier and therefore reduce the interest payment. Erin decided to do so too. Each year, she will split the extra payment to 12 month so that she pays $1098 per month all the way until paying off the mortgage. Doing so will pay off her mortgage within 307 months instead of 30 years. How much interest will she save? If you were Erin and have extra money, are you financially better off by making extra monthly payment and paying off your mortgage earlier |arrow_forwardProblem: Justin and Hayley are interested in a fixed-rate mortgage for $450,000. They are undecided whether to choose a 15- or 30-year mortgage. The current mortgage rate is 3.5% for the 15-year mortgage, and 3.85% for the 30-year mortgage. (a) What are the monthly principal and interest payments for EACH loan? Show your work. (b) What is the total amount of interest paid on EACH loan? Show your work. (c) Overall, how much more interest is paid by choosing the 30-year mortgage? Show your work.arrow_forwardYou are considering refinancing your home’s 30 year mortgage at a lower interest rate. Your original loan amount was $85,000 and your current monthly payment is $683.93. Assuming you wish to continue paying the same monthly amount on a new 30 year mortgage, how much cash can you pull out from refinancing the current loan balance at 6% now that you have been in the home for five years?arrow_forward
- Solve the given problem. A. Mrs. Ledesma apply for a loan for the renovation of their house. She agreed to pay P10,000 quarterly for 5 years that will start at the end of 2 years. If interest rate is 6% converted quarterly, how much is her loan? d. Period of deferral is ________. e. The interest rate per period is ___________. f. The present value of the loan is ___________. B. Your mother plans to buy you laptop for your online class. She got an offer from Abenson of monthly installment of 1,950 monthly for 1 year and a down payment of 5,500. The payment will start at the end of 3 months. How much is the cash price of the laptop if the interest rate is 3% compounded monthly. e. The interest rate per period is ___________. f. The present value of laptop is ___________. g. The down payment is _____________. h. The fair market value is ____________.arrow_forwardThe Howe family recently bought a house. The house has a 30-year, $162,902.00 mortgage with monthly payments and a nominal interest rate of4.4 percent. What is the total dollar amount of interest the family will pay during the first 3 years of their mortgage? (Assume that all payments are made at the end of the month.)Group of answer choices$23,976.84$19,976.84$22,976.84$21,976.84$20,976.84arrow_forwardThe Becker family is getting a home loan to finance a $260,000 mortgage. While looking for a mortgage, they found two alternatives: Mortgage A 30-year loan with an interest rate of 3.611% and a monthly payment of $1,184. Mortgage B 15-year loan with an interest rate of 2.7% Recall: Calculate the total amount paid for Mortgage A. Calculate the total interest paid for Mortgage A. Calculate the monthly payment for Mortgage B. Calculate the total amount paid for Mortgage B. Calculate the total interest paid for Mortgage B. Write a two or more sentences giving the Becker family some advice about which mortgage to choose. Why might the Becker family not take your advice from part c)? Answer in one or two sentences.arrow_forward
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- Pfin (with Mindtap, 1 Term Printed Access Card) (...FinanceISBN:9780357033609Author:Randall Billingsley, Lawrence J. Gitman, Michael D. JoehnkPublisher:Cengage Learning