Question.2983 - Due Week 7 and worth 55 points Five (5) years ago, you bought a house for $171,000, with a down payment of $30,000, which meant you took out a loan for $141,000. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information: Escrow payment $261.13 Principle and Interest payment $822.84 Total Payment $1,083.97 Current Loan Balance $130,794.68 Write a one to two (1-2) page paper in which you address the following: Part 1 With your current loan, explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25. Decide whether or not it would be reasonable to do this if you currently meet your monthly expenses with less than $100 left over. ? (a) Explain your strategy for solving the problem. ? (b) Present a step-by-step solution of the problem. ? (c) Clearly state your answer to Part 1. What is your decision? Part 2 Identify the highest interest rate you could refinance at in order to pay the current balance off in 20 years and determine the interest rate, to the nearest quarter point, that would require a monthly total payment that is less than your current total payment. The interest rate that you qualify for will depend, in part, on your credit rating. Also, refinancing costs you $2,000 up front in closing costs. ? (a) Explain your strategy for solving the problem. ? (b) Present a step-by-step solution of the problem. ? (c) Clearly state your answer to Part 2. What is your decision? Your assignment must follow these formatting requirements: ? Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. ? Include a cover page containing the title of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: ? Apply finance formulas and logarithms to amortize loans and calculate interest. ? Use technology and information resources to research issues in algebra. ? Write clearly and concisely about algebra using proper writing mechanics.
Answer Below:
Part 1 A) In the given problem we will have to find out the new Instalment which I have to pay in order to repay the loan in 20 years and the rate of interest is 5.75%. Given the current outstanding balance, so simply use the annuity formula to solve for the payment with 20 years and r = 5.75% B) Present a step-by-step solution of the problem. 130,794.68 = P[ 1 - (1+0.0575/12)^(-12*20)] / (0.0575/12) , now solve for P ... P = 918.29 [principal + interest, excluding escrow] The current Instalment = 822.84 per month Increase in monthly payment = 918.29 - 822.84 = $95.45 C) Since you currently meet your monthly expenses with less than $100 left over, this additional mortgage payment will lower your extra spending money to zero or possibly a deficit, we should not reduce the time of the loan to 20 years. Part 2 A) Similar to part 1, use the annuity formula to solve for the interest rate. First, find an interest rate that will equal your current monthly payment. Then, lower that rate to the next lower quarter point. B) Present a step-by-step solution of the problem. 30,794.68 = 822.84[ 1 - (1+r/12)^(-12*20)] / (r/12) you will need a financial calculator to solve for r or use "trial and error" ... r = 4.43% Now round down to the next nearest quarter point ... r = 4.25% This will lower your payment to 809.93 or about $13 per month C) My new interest rate is 4.25% plus $2,000 up front in closing costs assuming I meet the credit rating requirements.More Articles From Finance
.ico)
.ico)
.ico)
.ico)
