Chapter 9, Problem 4DTM

Kevin Tutumbo of Terre Haute, Indiana, has owned his home for 15 years and expects to live in it for at least five more. He originally borrowed $130,000 at 6.5 percent interest for 30 years to buy the home. He still owes $93,000 on the loan. Interest rates have since fallen to 5.5 percent, and Kevin is considering refinancing the loan for 15 years. He would have to pay 2 points on the new loan with no prepayment penalty on the current loan. What is Kevin's current monthly payment? Round Estimating Mortgage Loan Payments for Principal and Interest in your intermediate calculations to four decimal places. Use Table 9-4. Round your answer to the nearest cent. Calculate the monthly payment on the new loan. (Note: The points on the new mortgage are not included in the mortgage amount.) Round Estimating Mortgage Loan Payments for Principal and Interest in your intermediate calculations to four decimal places. Use Table 9-4. Round your answer to the nearest cent.

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.

Jim Thorpe borrows $70,000 toward the purchase of a home at 12 percent interest. His mortgage is for 30 years. a. How much will his annual and monthly payments be? b. How much interest will he pay over the life of the loan? c. How much should he be willing to pay to get out of a 12 percent mortgage and into a 10 percent mortgage with 30 years remaining on the mortgage? Suggestion: Find the annual savings and then discount them back to the present at the current interest rate (10 percent).