Question

Case 1: You apply for a 20-year, fixed-rate (APR 6.48%) monthly-payment-required mortgage loan for a house selling for $150,000 today. Your bank requires 22% initial down payment of house value (to be paid upfront in cash immediately, thus not included in the loan balance), and $3,000 application-process-closing cost (to be carried into the beginning loan balance and amortized later).

(a) What is your monthly loan payment if you stick to the mortgage deal till the end (assuming each payment is made at the end of each month)?

(b) 9 years (i.e., 108 months, please note again that it is a monthly mortgage) after buying the house, what will be the remaining loan principal balance?

(c) 9 years (i.e., 108 months) after buying the house, the mortgage loan market rate drops from 6.48% APR to 6.00% APR. You want to refinance, but the bank would charge an extra fee of $4,500 for refinancing (which would be carried into the remaining loan balance for amortization). Would you be able, and by how much, to lower your monthly loan payment, if you choose to refinance on the remaining loan principal balance over the remaining loan life period? Based on your calculation results, should you choose to refinance or not?

(d) Redo the calculations in Question (c), assuming that the loan market rate drops from 6.48% APR to 5.76% APR (instead of 6.00%). Shall you choose to refinance then?

Need Excel Formulas for all

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.