Question

You purchase a $325,000 town home and you pay 25 percent down. You obtain a 30-year fixed-rate mortgage with an annual interest rate of 5.75 percent and monthly payments. After five years you refinance the mortgage for 25 years at a 5.1 percent annual interest rate. After you refinance, what is the new monthly payment (to the nearest dollar)?

Answer 1

First, we will calculating the Outstanding balance at the end of 5 years:-

Where, P = Loan Amount= $325,000

r = Periodic Interest rate = 5.75%/12 = 0.479166%

n= no of periods = 30 years*12 = 360

m = no of periods lapsed = 5 years*12 = 60

So, Outstanding Balance after 5 years is $ 301,477.10

Now, after 5 years with the above outstanding balance they refinance the loan for 25 years at 5.1% interest rate.

calculating the Monthly payment of above refinance:-

Where, P = Loan Amount= $301,477.10

r = Periodic Interest rate = 5.10%/12 = 0.425%

n= no of periods = 25years*12 = 300

So, monthly payment on new refinance loan = $ 1780

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