Question

Question 10 10 pts Suppose that you purchased a house with a $140,000 mortgage (30-year fixed at 6% with a payment of $839.37) five years ago. The loan balance is currently $130,276 and you can refinance that balance at 5% with a new 30-year fixed rate mortgage. You anticipate being in the house for another five years, at which point the balance on your current mortgage would be $117,160. If you refinanced at the terms above, what would be the difference in the loan balances? $1,329 $1,871 $2.471 $3,132 $3,860

Answer 1

Answer: Option C: $2471

Given

Loan balance for transfer L=130276

NUmber of years =30

N=30*12=360

rate =5%

Monthly rate r=5%/12=0.417%

So Payment per month P=l*r/(1-(1+r)^-N) =130276*0.417%/(1-(1+0.417%)^-360)= $699.35

After five years of payment outsanding loan B=P*(1-(1+r)^-300)/r= 699.35*(1-(1+0.417%)^-300)/0.417%=$119630.80

Given in last loan outstanding amount after 5 more years A=117160

So difference in loan balance = B-A=119630.80-117160=$2471