Question

1. Suppose that 10 years ago you bought a home for $150,000, paying 10% as a down payment, and financing the rest at 8% interest for 30 years. How much money did you pay as your down payment? 2. How much money was your existing mortgage (loan) for? 3. What is your current monthly payment on your existing mortgage? Note: Carry at least 4 decimal places during calculations, but round your final answer to the nearest cent. 4. How much total interest will you pay over the life of the existing loan? C 5. This year (10 years after you first took out the loan), you check your loan balance. Only part of your payments have been going to pay down the loan; the rest has been going towards interest. You see that you still have $118,428 left to pay on your loan. Your house is now valued at $180,000. How much of the original loan have you paid off? (i.e, how much have you reduced the loan balance by? 6. How much money have you paid to the loan company so far (over the last 10 years)? 7. How much interest have you paid so far (over the last 10 years)? 8. How much equity do you have in your home (equity is value minus remaining debt)? 9. Since interest rates have dropped, you consider refinancing your mortgage at a lower 6% rate. If you took out a new 30 year mortgage at 6% for your remaining loan balance, what would your new monthly payments be? 10. How much interest will you pay over the life of the new loan? 11. Notice that if you refinance, you are going to be making payments on your home for another 30 years. In addition to the 10 years you've already been paying, that's 40 years total. How much will you save each month because of the lower monthly payment? 12. How much total interest will you be paying (consider the interest you paid over the first 10 years of your original loan as well as interest on your refinanced loan)? 13. Now the non-computational question: Does it make sense to refinance? (There isn't a correct answer to this question. Just give your opinion and your reason.)

Please help me! I am very lost in trying to figure all of this out!

Answer 1

Since, there are multiple parts to the question, I have answered the first four.

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Part 1)

The amount of money paid as down payment is calculated as below:

Downpayment = Value of Home*Percentage Paid as Downpayment

Here, Value of Home = $150,000 and Percentage Paid as Downpayment = 10%

Using these values in the above formula, we get,

Downpayment = 150,000*10% = $15,000

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Part 2)

The value of loan is determined as below:

Loan Value = Value of Home - Downpayment

Here, Value of Home = $150,000 and Downpayment = $15,000

Using these values in the above formula, we get,

Loan Value = 150,000 - 15,000 = $135,000

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Part 3)

The amount of current monthly payment can be calculated with the use of PMT (Payment) function/formula of EXCEL/Financial Calculator. The function/formula for PMT is PMT(Rate,Nper,PV,FV) where Rate = Interest Rate, Nper = Period, PV = Present Value and FV = Future Value (if any).

Here, Rate = 8%/12, Nper = 30*12 = 360, PV = $135,000 and FV = 0

Using these values in the above function/formula for PMT, we get,

Monthly Payment = PMT(8%/12,360,135000,0) = $991

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Part 4)

The total amount of interest that will be paid over the life of the loan is arrived as below:

Total Amount of Interest = Total Amount Paid Over Life of Loan - Value of Loan

Here, Total Amount Paid Over Life of Loan = 360*990.58 = $356,610 and Value of Loan = $135,000 [actual value of downpayment has been taken in determining the total amount paid over the life of the loan and not the rounded off value of $991]

Using these values in the above formula, we get,

Total Amount of Interest = 356,610 - 135,000 = $221,610