Five years ago you borrowed $200,000 to finance the purchase of a $240,000 home. The interest rate on the old mortgage loan is 6percent. Payments are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance thecurrent outstanding loan balance at 4 percent with monthly payments for 30 years. The new lender will charge two discount points onthe loan. Other refinancing costs will equal $6,000. There are no prepayment penalties associated with either loan. You feel theappropriate opportunity cost to apply to this refinancing decision is 4 percent.Required:a. What is the payment on the old loan?b. What is the current loan balance on the old loan (five years after origination)?c. What would be the monthly payment on the new loan?d. Should you refinance today if the new loan is expected to be outstanding for five years?Note: For all requirements, Do not round intermediate calculations and round your final answer to 2 decimal places.a. Payment on old loanb. Current balancec. Monthly paymentd. Should you refinance today?$Yes1,199.10

We can determine the monthly payment using the formula below:Once we have determine the monthly…

Answered: a. Payment on old loan b. Current…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 17P

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Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of 50,000. First City has offered Hawley the alternatives listed here. Calculate the effective annual interest rate for each alternative. Which alternative has the lowest effective annual interest rate? a. A 12% annual rate on a simple interest loan, with no compensating balance required and interest due at the end of the year b. A 9% annual rate on a simple interest loan, with a 20% compensating balance required and interest due at the end of the year c. An 8.75% annual rate on a discounted loan, with a 15% compensating balance d. Interest figured as 8% of the 50,000 amount, payable at the end of the year, but with the loan amount repayable in monthly installments during the year
Five years ago you borrowed $200,000 to finance the purchase of a $240,000 house. The interest rate on the old mortgage is 6%. Payment terms are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 4% with monthly payments for 25 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $6,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 4%. Assume you plan to stay in the house for 25 years, is the refinance worth it? What if you only plan to stay for another 5 years? DO ON EXCEL Current loan payment Current loan balance after 5 years New loan payment Discount points Total refinance costs Payment savings Net benefit of refinance (25 years) NPV of refinance (25 years) Net benefit of refinance (5 years) NPV of…
You purchase a home and secure a 30 year equal payment loan for $200,000 at a interest rate of 5.25% APR compounded monthly. After 5 years the interest rate drops to 4.75% APR compounded monthly. The bank is charging 2 points to originate the new loan. How many months do you need to stay in the house after the refinance to make the refinance a benefit (Round to next month)?
Ten years ago you borrowed $300,000 to finance the purchase of a $350,000 house. The interest rate on the old mortgage is 7%. Payment terms are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 4.5% with monthly payments for 20 years. The new lender will charge one discount point on the loan. Other refinancing costs will equal $8,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 4.5%. What should be the monthly payment on the new loan (answers rounded to hundreds)? Excel O a) $1,300 b) $1,600 O c) $1,900 d) $2,000 e) $2,200
Ten years ago you took out $200,000, 30-year mortgage with an annual interest rate of 9 percent and monthly payments of $1,609.25. But since you took out that loan, interest rates have dropped. i. Determine the outstanding balance on your current loan for the remaining 240 payments. ii. If you refinance your loan at an annual rate of 7 percent, calculate the new monthly payment for another 20 years.

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a. Payment on old loan b. Current balance c. Monthly payment $ 1,199.10