Question

Consider a 15-year, $140,000 mortgage with a rate of 5.80 percent. Five years into the mortgage, rates have fallen to 5 percent. What would be the monthly saving to a homeowner from refinancing the outstanding mortgage balance at the lower rate

Answer 1

Step-1:Monthly payment at the beginning of mortgage period
Monthly payment		=pmt(rate,nper,pv)		Where,
		$       1,166.33		rate	=	5.80%/12	=	0.004833333
				nper	=	15*12	=	180
				pv			=	$ -1,40,000.00
Step-2:Mortgage balance after 5 years
Mortgage balance		=-pv(rate,nper,pmt)		Where,
		$ 1,06,011.49		rate	=	5.80%/12	=	0.004833333
				nper	=	(15-5)*12	=	120
				pmt			=	$         1,166.33
Step-3:Revised monthly payment
Monthly payment		=pmt(rate,nper,pv)		Where,
		$       1,124.42		rate	=	5.00%/12	=	0.004166667
				nper	=	(15-5)*12	=	120
				pv			=	$ -1,06,011.49
Step-4:Saving of monthly payment
Saving of monthly payment	=	Monthly payment at beginning	-	Monthly payment after 5 years
	=	$       1,166.33	-	$ 1,124.42
	=	$             41.91