Question

15. [-/0.1 Points] DETAILS TANAPMATHS 4.3.048. MY NOTES PRACTICE ANOTHER Five years ago, Diane secured a bank loan of $300,000 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 10%/year compounded monthly on the unpaid balance. Because the interest rate for a conventional 30-yr home mortgage has now dropped to S%/year compounded monthly, Diane is thinking of refinancing her property. (Round your answers to the nearest cent.) (a) What is Diane's current monthly mortgage payment? $ (b) What is Diane's current outstanding principal? $ (c) If Diane decides to refinance her property by securing a 30-yr home mortgage loan in the amount of the current outstanding principal at the prevailing interest rate of 5%/year compounded monthly, what will be her monthly mortgage payment? $ (d) How much less would Diane's monthly mortgage payment be if she refinances? $ Need Help? Read Tutor

Answer 1

Solution:

a)Calculation of monthly mortagage payment:

Monthly interest rate(r)=10%/12=0.83% or 0.0083

no. of payment(n)=30*12=360

Loan Amount(A)=$300,000

Monthly mortgage payment=A[r(1+r)^n/(1+r)^n-1]

=$300,000[0.0083(1+0.0083)^360/(1+0.0083)^360-1]

=$2632

b)Diane current outstanding principal:

Using amortization table,outstanding principal after the end of 5th year is $289,934.

c)Calculation of monthly mortgage payment:

Using the above formula,monthly mortgage payment is:

=$289,934[0.0042(1+0.0042)^360/(1+0.0042)^360-1]

=$1556

d)Calculation of saving due to refinance

=$2632-$1556

=$1076