Question

Consider a 20-year mortgage for $396,521 at an annual interest rate of 4.8%. After 6 years, the mortgage is refinanced to an annual interest rate of 2.3%. What are the monthly payments after refinancing?

Round your answer to the nearest dollar.

Answer 1

Original Monthly Payment = [Mortgage Amount * r] / [1 - (1 + r)^-n]

= [$396,521 * (0.048/12)] / [1 - {1 + (0.048/12)}^-(20*12)]

= $1,586.08 / 0.8528 = $1,859.79

Mortgage Balance after 6 years:

N = 6*12 = 72;

I/Y = 4.8/12 = 0.4;

PV = 396,521;

PMT = -1,859.79;

Press CPT, then FV, which gives us -373,735.73

So, Remaining Balance after 6 years = $373,735.73

So, New Monthly Payment = [Mortgage Amount * r] / [1 - (1 + r)^-n]

= [$373,735.73 * (0.023/12)] / [1 - {1 + (0.023/12)}^-[(20-6)*12]]

= $716.33 / 0.2751 = $2,604.08, or $2,604