Question

Assume you have a student loan that you will pay off in 10 years. How much will you save in interest if you refinance at the new​ rate? Use the accompanying table of monthly payments on a​ $1,000 loan.

Amount of Loan	Original Rate	New Rate
​$19,000	10​%	8​%

The total savings in interest will be?

Answer 1

Calculating Monthly Payment at 10%,

Using TVM Calculation,

PMT = [PV = 19,000, FV =0 , N = 120, I = 0.10/12]

PMT = $251.09

Calculating Monthly Payment at 8%,

Using TVM Calculation,

PMT = [PV = 19,000, FV =0 , N = 120, I = 0.08/12]

PMT = $230.52

Total Interest Saving = 120(251.09 - 230.52)

Total Interest Saving = $2,468.40