Suppose you take out a 50-year $100 000 mortgage with an APR of 6%. You make payments for 5
years (60 monthly payments) and then consider refinancing the original loan. The new loan would have a
term of 15 years has an APR of 5.4%, and be in the amount of the unpaid balance on the original loan.(The amount you borrow on the new loan would be used to
pay off the balance on the original loan.) The
administrative cost of taking out the second loan would be $1600.
Use the information to complete parts (a) through (e) below. (Round to the nearest cent as needed)
a.What are the monthly payments on the original loan?
b.What would the monthly payments be on the second loan
c.What would be the total amount you would pay if you continue with the original 50 years loan without refinancing.
d.What would be the total amount you would pay with the refinancing?
e.Compare the two options and decide which one you would choose. What other factors should be considered in making the decision?
Sample Solution
