Question

Jim and Susie take out a mortage for $130,000 at 8% for 30 years.
What are their monthly payments?


After 9 years, they decide to refinance with a 7.75% 15 year loan. What are their new monthly payments?


How much will they save by refinancing?

Answer 1

Information provided:

Mortgage= $130,000

Time = 30 years*12= 360 months

Interest rate= 8%/12= 0.6667% per month

PV= -130,000

N= 360

I/Y= 0.6667

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 953.89.

Therefore, the monthly payment is $953.89.

Refinancing:

Mortgage= $130,000 – (108*$953.89)= $26,979.88.

Time = 15 years*12= 180 months

Interest rate= 7.75%/12= 0.6458% per month

PV= -$26,979.88.

N= 180

I/Y= 0.6458

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 253.96.

Therefore, the new monthly payment is $253.96.

Amount saved by refinancing= $953.89- $253.96.

                                                         = $699.93.

Therefore, they saved $699.93 in monthly payments.

In case of any query, kindly comment on the solution.