SOLUTION: I need help with part A and B. 12. The Smiths are refinancing their home mortgage to a 15-year loan at 5.25% annual interest compounded monthly. Their outstanding balance on t

Question 1041259: I need help with part A and B.
12. The Smiths are refinancing their home mortgage to a 15-year loan at 5.25% annual interest compounded monthly. Their outstanding balance on the loan is $95,000.
a) Under their current loan, the Smiths� monthly mortgage payment is $1104. How much will the Smiths be saving in their monthly mortgage payments by refinancing? (Round your answer to the nearest dollar.)
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b) How much interest will the Smiths pay over the life of the new loan?
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Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
12. The Smiths are refinancing their home mortgage to a 15-year loan at 5.25% annual interest compounded monthly. Their outstanding balance on the loan is $95,000.

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a) Under their current loan, the Smiths� monthly mortgage payment is $1104. How much will the Smiths be saving in their monthly mortgage payments by refinancing? (Round your answer to the nearest dollar.)
the new loan is 15 years at 5.25% apr compounded monthly.
apr = annual percentage rate
outstanding balance on the old loan is 95,000.
the new loan is for 95,000.
the interest rate per time period = 5.25% / 12 = .4375% per month.
the number of time periods = 15*12 = 180 months.

using the online financial calculator, enter the following:
Present Value = -95000
Future Value = 0
Number of Periods = 180
Interest Rate per period, % = .4375
Payment At = End
click on pmt and the calculator will tell you that the monthly payment is 763.68
round this to 764.

your old payment per month is 1104.
subtract 764 from that to get 1104 - 764 = 340.

you saved 340 per month by refinancing.

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b) How much interest will the Smiths pay over the life of the new loan?

they made 180 payments of 764 each for a total of 137520.

the amount of the loan was 95000.

the total interest paid was therefore 137520 - 95000 = 42520.

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note that the monthly payment was really 763.68
this is already rounded to the nearest penny.
the actual number from another financial calculator i use would have been 763.6838297.
you then rounded this to the nearest dollar which was 764.
you then used the rounded number to calculator the total payments made.
if you had used the 763.68 rather than the 764, the total payments would have been 137462.4 which would then have been rounded to 137462.
137462 - 95000 = 42462.
your answer would be different depending on what number you used.
i have no idea what number they are looking for you to use when calculating total interest.
i would have used 763.68, but they may have wanted you to use 764.
this is something you might need to ask your instructor about.

in the tutorial, the formula you would want to use would be:
ANNUITY FOR A PRESENT AMOUNT WITH END OF TIME PERIOD PAYMENTS

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