Please help, I'm stuck on this question and would appreciate any assistance. Thanks.
Five years ago, Diane secured a bank loan of $280,000 to help finance the purchase of a loft in the San Francisco Bay area. The term of the mortgage was 30 yr, and the interest rate was 12%/year compounded monthly on the unpaid balance. Because the interest rate for a conventional 30-yr home mortgage has now dropped to 10%/year compounded monthly, Diane is thinking of refinancing her property. How much less would Diane's monthly mortgage payment be if she refinances? Please round the answer to the nearest cent.
So far, I have used the amortization formula and for both the 12% and 10% compounded monthly and found the difference of both but it seems like my answers are still quite some ways off of the choices given:
a) $496.75
b) $458.46
c) $479.28
d) $474.35
e) $480.33
Also, do I have to recalculate my number of payments to 25 years - 12X25 instead?
It's the norm, I believe for a mortgage loan to be restarted at 30 years when the loan is refinanced, even after years have passed, monthly mortgage payments
were made, and the principal had been reduced.
After 5 years (mortgage loan was secured 5 years earlier), and after calculating amortization, the mortgage loan has reduced to $273,457.01, after monthly mortgage payments of $2,880.12 were made.
Since it's likely that the term of the loan was RESTARTED (30 years as opposed to 25 years), the new monthly mortgage payment, based on the new mortgage loan balance
of $273,457.01, and the new interest rate of 10%, would be $2,399.781.
Difference between old and new monthly mortgage payments: .
Notice that when it comes to finance, amounts are usually rounded down, and so, $480.339 becomes: $480.33 (CHOICE e)