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    R Interest Rate 12% 12%/ 12 1% 0.01/ Month: PV PMT

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    The mortgage on the person's house is 5 years old with monthly payments of $1433, a 30-year term, and an interest rate of 12%. They are refinancing to a new 30-year mortgage with an interest rate of 7.2%. a) The monthly payments on the new loan will be $923.5483 b) To pay it off in 25 years, the monthly payment should be $979.0609 c) If continuing payments of $1433, it will take 141 months (11.75 years) to pay it off d) To pay it off in 25 years with payments of $1433, $63,083.1319 can

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    R Interest Rate 12% 12%/ 12 1% 0.01/ Month: PV PMT

    Uploaded by

    sa sa
    20 views3 pages
    The mortgage on the person's house is 5 years old with monthly payments of $1433, a 30-year term, and an interest rate of 12%. They are refinancing to a new 30-year mortgage with an interest rate of 7.2%. a) The monthly payments on the new loan will be $923.5483 b) To pay it off in 25 years, the monthly payment should be $979.0609 c) If continuing payments of $1433, it will take 141 months (11.75 years) to pay it off d) To pay it off in 25 years with payments of $1433, $63,083.1319 can

    Original Description:

    Corporate Finance

    Original Title

    CF-T222WSB-1_72hExerciese_Group-2_Exercise-1

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    The mortgage on the person's house is 5 years old with monthly payments of $1433, a 30-year term, and an interest rate of 12%. They are refinancing to a new 30-year mortgage with an interest rate of 7.2%. a) The monthly payments on the new loan will be $923.5483 b) To pay it off in 25 years, the monthly payment should be $979.0609 c) If continuing payments of $1433, it will take 141 months (11.75 years) to pay it off d) To pay it off in 25 years with payments of $1433, $63,083.1319 can

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    20 views3 pages

    R Interest Rate 12% 12%/ 12 1% 0.01/ Month: PV PMT

    Uploaded by

    sa sa
    The mortgage on the person's house is 5 years old with monthly payments of $1433, a 30-year term, and an interest rate of 12%. They are refinancing to a new 30-year mortgage with an interest rate of 7.2%. a) The monthly payments on the new loan will be $923.5483 b) To pay it off in 25 years, the monthly payment should be $979.0609 c) If continuing payments of $1433, it will take 141 months (11.75 years) to pay it off d) To pay it off in 25 years with payments of $1433, $63,083.1319 can

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 3

    The mortgage on your house is five years old.

    It required monthly payments of $1433, had an


    original term of 30 years, and had an interest rate of 12% (APR). In the intervening five years,
    interest rates have fallen and so you have decided to refinance—that is, you will roll over the
    outstanding balance into a new mortgage. The new mortgage has a 30-year term, requires
    monthly payments, and has an interest rate of 7.2% (APR).

    a. What monthly repayments will be required with the new loan?

    b. If you still want to pay off the mortgage in 25 years, what monthly payment should you make
    after you refinance?

    c. Suppose you are willing to continue making monthly payments of $1433. How long will it
    take you to pay off the mortgage after refinancing?

    d. Suppose you are willing to continue making monthly payments of $1433, and want to pay off
    the mortgage in 25 years. How much additional cash can you borrow today as part of the
    refinancing?

    a.
    - Note:

    ● PV = original loan value


    ● r = interest rate = 12% → 12%/ 12 = 1% = 0.01/ month
    ● n = number of periods
    ● PMT = payment

    The original loan value can be calculated by using the formula:

    1−(1+ r)−n
    PV = PMT ×
    r

    −360
    1−(1+0.01)
    → PV = $1433 ×
    0.01

    → PV = $139,313.8684

    The formula for remaining balance is after 5 years is:

    (1+r )n−1
    Remaining balance = PV × (1+r)n − PMT ×
    r
    60
    (1+ 0.01) −1
    ¿ $139,313.8684 × (1+0.01)60 – $1,433 ×
    0.01

    ¿$136,058.4079

    This is the amount of the new loan. The new interest rate r is 7.2% / 12 = 0.6% / month.

    Using the annuity formula, the monthly payment is:

    −n
    1−(1+ r)
    PV = PMT ×
    r
    −360
    1−(1+ 0.006)
    $136,058.4079 = PMT ×
    0.006

    PMT = $923.5483

    The new payment is $923.5483

    b.
    Using n = 300
    1−(1+ r)−n
    PV = PMT ×
    r

    −300
    1−(1+ 0.006)
    $136,058.4079 = PMT ×
    0.006

    PMT = $979.0609

    The payment is $979.0609

    c.

    Using PMT = $1,433

    −n
    1−(1+ r)
    PV = PMT ×
    r

    −n
    1−(1+ 0.006)
    $136,058.4079 = $1,433 ×
    0.006

    → n ~ 141 (months)
    It will take 141 months
    d.

    The loan amount that can be borrowed is:

    −n
    1−(1+ r)
    PV = PMT ×
    r

    −300
    1−(1+ 0.006)
    PV = $1,433 ×
    0.006

    → PV = $199,141.5398

    The additional amount that can be borrowed is: $199,141.5398 - $136,058.4079 = $63,083.1319

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