Posted by t on .
Five years ago, you bought a house for $171,000. You had a down payment of $35,000, which meant you took out a loan for $136,000. Your interest rate was $5.6% fixed. You would like to pay more on your loan. You check your bank statement and find the following information.
Escrow payment: $232.78
Principle and Interest payment: $751.90
Total payment: $984.68
Current Loan balance: $121,259.44
Then, answer these questions:
1. Assuming you currently meet your monthly expenses with no left over to speak of, how much more money a month do you need to make in order to pay off your loan in 20 years instead of 25? Is this reasonable?
2. Is it more or less reasonable to consider refinancing your loan? In order to answer this, you need to look at different interest rates. Know that if you refinance, your minimum monthly payments will be based on a thirty-year loan (though you still want to be done in 20 years). Also, refinancing costs you a couple of thousand dollars up front in closing costs.
$121,259.44 @ 5.6% for 20 yrs.
Pt = Po*r*t / (1 - (1+r)^-t),
r=5.6% / 12 = 0.46667% / mo = 0.004667 = Monthly % rate expressed as a decimal.
t = 20yrs * 12mo/yr = 240 mo.
Pt=121,259.44*0.004667*240 / (1-(1.004667)^-240 = 135,820.27/0.672895=
Monthly(I+p) = $840.99.
Escrow = 232.78
Total = $1073.77.
Increase = 1073.77 - 984.68 = $89.09.
So the answer would be to be able to pay 89.09 more a month.
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