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Question 571866: Five years ago, you bought a house for $151,000, with a down payment of $30,000, which meant you took out a loan for $121,000. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information:
Escrow payment
$211.13
Principle and Interest payment
$706.12
Total Payment
$917.25
Current Loan Balance
$112,242.47
Write a 1-2 page paper in which you:
Explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.
Explain whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.
It might be possible to pay the current balance off in 20 years if you refinanced the loan at a lower interest rate. The interest rate that you qualify for will depend, in part, on your credit rating. Identify the highest interest rate you could refinance at in order to do this and determine the interest rate that would require a monthly total payment that is less than your current total payment. Also, refinancing costs you $2000 up-front in closing costs.
Explain whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates. Know that if you refinance, your minimum monthly payments will be based on a 30-year loan (though you still want to be done in 20 years). Also, refinancing costs you a couple of thousand dollars up front in closing costs.
To work on this problem, you may use Table 1 or a mortgage calculator from the Internet.
Table 1.
Note: This is the same type of table as Table 7.2 on page 166 of the text, except that the monthly cost is carried out to more decimal places, to minimize round-off error when using the chart. Also, the values are more in line with today’s prevailing mortgage rates and with the problem at hand.
Monthly Cost to Finance $1,000
Rate of Interest
Number of Years Financed
5 Years
10 Years
15 Years
20 Years
25 Years
30 Years
N = 60
N=120
N=180
N=240
N=300
N=360
3.75
18.3039
10.0061
7.2722
5.9289
5.1413
4.6312
4.00
18.4165
10.1245
7.3969
6.0598
5.2784
4.7742
4.25
18.5296
10.2437
7.5228
6.1924
5.4174
4.9194
4.50
18.6430
10.3638
7.6499
6.3265
5.5583
5.0669
4.75
18.7569
10.4848
7.7783
6.4622
5.7012
5.2165
5.00
18.8712
10.6065
7.9079
6.5996
5.8459
5.3682
5.25
18.9860
10.7292
8.0388
6.7384
5.9925
5.5220
5.50
19.1012
10.8526
8.1708
6.8789
6.1409
5.6779
5.75
19.2168
10.9769
8.3041
7.0208
6.2911
5.8357
6.00
19.3328
11.1021
8.4386
7.1643
6.4430
5.9955
Answer by richard1234(7193)   (Show Source):
You can put this solution on YOUR website! None of us are going to be able to interpret all those numbers. Also, we're not going to write your 1-2 page paper for you. This is a homework help site; we don't do your homework for you.
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