1. Jacqueline and Keith Sommers are considering the implications of refinancing their 30-year mortgage (interest rate...

1. Jacqueline and Keith Sommers are considering the implications of refinancing their 30-year mortgage (interest rate = 7.25%) that they purchased 5 years ago at $300,000 (20% down payment and 80% mortgage loan monthly payment). Now after 5 years (60 monthly payments) the balance of loan has been reduced to $226,509.07.

Rates have declined considerably, and a major refinancing frenzy is underway.

They are trying to determine whether they should go in for a 15-year mortgage at 2.75% per year and whether they should ‘cash out’ the excess equity that has been built over the past 5 years.

Required:

a. What is Jacqueline and Keith’s monthly mortgage payment prior to the refinancing?

b. What percentage of the second payment was interest and what percentage applied to payment of the loan?

c. During the first 5 years, how much has the couple paid towards the mortgage. What proportion of this was applied toward interest?

d. Had the couple opted for the 15-year mortgage (15 year, 6.25%), how much higher would their monthly payment have been?

e. If the house is currently worth $355,000 and most lenders are willing to lend up to 90% of home value, how much excess equity can the Sommers cash out?

f. Under the original 15-year, 6.25% mortgage, how much interest would have been paid over the life of the loan? How does this compare with the 7.25%, 30-year mortgage? Please show all work.

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 2 years ago

Mortgage interest rates and home prices 30-year mortgage rates year interest rate (%) Median home price...

Mortgage interest rates and home prices 30-year mortgage rates year interest rate (%) Median home price 1988 10.30 183,800 1989 10.30 183,200 1990 10.10 176,900 1991 9.30 173,500 1992 8.40 172,900 1993 7.30 173,200 1994 8.40 173,200 1995 7.90 169,700 1996 7.60 174,500 1997 7.60 177,900 1998 6.90 188,100 1999 7.40 203,200 2000 8.10 230,200 2001 7.00 258,200 2002 6.50 309,800 2003 5.50 329,800 1. Generate two separate scatter plots, following the requirements below, with the data provide. a. year...

Mortgage Payment You currently have a 30-year fixed rate mortgage with an annual interest rate of...

Mortgage Payment You currently have a 30-year fixed rate mortgage with an annual interest rate of 6%. You have had the mortgage 4 years, and on September 1, 2015 you made your 48th payment. The original principal amount was $280,000 and you monthly payment, without taxes and insurance, are $1,678.74 per month, computed using the Excel function =PMT(0.5%,360,280000,0,0). Starting with your original mortgage your banker calls and says that you could refinance your existing mortgage (6% rate, 30-year original term)...

1. Suppose you take out a 30-year mortgage for $207,418 at an annual interest rate of...

1. Suppose you take out a 30-year mortgage for $207,418 at an annual interest rate of 3.1%. After 20 years, you refinance to an annual rate of 2.0%. How much interest did you pay on this loan? Round your answer to the nearest dollar. _____________________ 2. Consider a 20-year mortgage for $183,858 at an annual interest rate of 4.9%. After 10 years, the mortgage is refinanced to an annual interest rate of 2.9%. What are the monthly payments after refinancing?...

Since interest rates have dropped, you consider refinancing your mortgage at a lower 6% rate. If...

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 your new monthly payments would be $675.58. House was $140,000 paying10% as down payment (14000) and 9% interest for the next 30 years a. how much interest will you pay over the life of the new loan? b. notice that if you refinance your house you are going to...

Consider a 30-year mortgage for $137018 at an annual interest rate of 3.9%. What is the...

Consider a 30-year mortgage for $137018 at an annual interest rate of 3.9%. What is the remaining balance after 19 years? Round your answer to the nearest dollar.

A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and...

A borrower has a 30-year mortgage loan for $200,000 with an interest rate of 6% and monthly payments. If she wants to pay off the loan after 8 years, what would be the outstanding balance on the loan? (D) $84,886 $91,246 $146,667 $175,545 Not enough information Please explain me the step on financial calculator. The answer is D

What is refinancing risk? How is refinancing risk part of interest rate risk? If an FI...

What is refinancing risk? How is refinancing risk part of interest rate risk? If an FI funds long-term assets with short-term liabilities, what will be the impact on earnings of an increase in the rate of interest? A decrease in the rate of interest? What is reinvestment risk? How is reinvestment risk part of interest rate risk? If an FI funds short-term assets with long-term liabilities, what will be the impact on earnings of a decrease in the rate of...

Teaser Rate Mortgage A mortgage broker is offering a 30-year mortgage with a teaser rate. In...

Teaser Rate Mortgage A mortgage broker is offering a 30-year mortgage with a teaser rate. In the first two years of the mortgage, the borrower makes monthly payments on only a 5.6 percent APR interest rate. After the second year, the mortgage interest charged increases to 9.2 percent APR. What is the effective interest rate in the first two years? What is the effective interest rate after the second year? 5.60%, 9.20% respectively 5.75%, 9.60% respectively 5.49%, 8.92% respectively 13.19%,...

32. Mortgage rates: Following are interest rates (annual percentage rates) for a 30-year fixed rate mortgage...

32. Mortgage rates: Following are interest rates (annual percentage rates) for a 30-year fixed rate mortgage from a sample of lenders in Macon, Georgia on a recent day. It is reasonable to assume that the population is approximately normal. 4.750 4.375 4.176 4.679 4.426 4.227 4.125 4.250 3.950 4.191 4.299 4.415 a. Construct a 99% confidence interval for the mean rate. b. One week earlier, the mean rate was 4.050%. A mortgage broker claims that the mean rate is now...

Jackie bought a $200,000 house and has a 30 year mortgage at anominal interest rate...

Jackie bought a $200,000 house and has a 30 year mortgage at a nominal interest rate of 4.8% convertible monthly. Jackie must pay level payments at the end of each month. Find the amount of her monthly mortgage payment. After 200 payments have been made, what is the ratio of total interest paid to total principal repaid?

Question