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.

To answer these questions, we need to perform some calculations. Let's break it down step by step:

1.) To pay off the loan in 20 years instead of 25, we need to determine the additional monthly payment required.

First, let's calculate the remaining term of the loan in months. Since it has been 5 years already, there are 20 - 5 = 15 more years remaining on the loan.
So, the remaining term in months is 15 years * 12 months/year = 180 months.

Next, let's calculate the monthly payment required to pay off the loan in 20 years:
Loan balance / Remaining term = $121,259.44 / 180 = $673.66 (approximately)

The difference between your current monthly payment and the new monthly payment is:
Additional payment required = New monthly payment - Current monthly payment
Additional payment required = $673.66 - $751.90 = -$78.24 (approximately)

Based on this calculation, you would need to make an additional payment of approximately $78.24 every month to pay off your loan in 20 years instead of 25. However, since the amount is negative, it means you are already paying more than required, and no additional monthly income is needed.

2.) To determine if it is more reasonable to consider refinancing your loan, we need to compare the costs and benefits of refinancing. Since refinancing costs closing costs of a couple of thousand dollars, we need to ensure that the potential savings in interest outweigh these costs.

To assess this, we need to calculate the savings in interest from refinancing at a lower interest rate. Let's assume a new interest rate of 5% for demonstration purposes.

Calculate the new monthly payment based on a 30-year loan term:
Loan Amount = $121,259.44
Interest Rate = 5%
Loan Term = 30 years = 30 * 12 = 360 months

Using the formula to calculate a fixed monthly payment:
New Monthly Payment = P * r * (1 + r)^n / (1 + r)^n - 1
where P is the loan amount, r is the monthly interest rate, and n is the total number of payments.

Monthly Interest Rate = 5% / 12 = 0.4167% (approximately)
New Monthly Payment = $121,259.44 * 0.4167% * (1 + 0.4167%)^360 / ((1 + 0.4167%)^360 - 1)
New Monthly Payment = $610.96 (approximately)

Calculate the potential savings in interest by comparing the total interest paid on the current loan with the new loan:
Total interest paid on the current loan = Monthly Payment * Remaining Term - Loan Amount
Total interest paid on the current loan = $751.90 * 180 - $121,259.44

Total interest paid on the new loan = Monthly Payment * Loan Term - Loan Amount
Total interest paid on the new loan = $610.96 * 360 - $121,259.44

Potential savings in interest = Total interest paid on the current loan - Total interest paid on the new loan

Comparing the potential savings in interest with the upfront closing costs will help determine if refinancing is reasonable.

To answer these questions, we need to analyze the given information and perform some calculations. Let's break down each question step by step.

1.) To determine how much more money you need to make each month to pay off your loan in 20 years instead of 25, we need to calculate the monthly payment for a 20-year loan term.

First, let's calculate the remaining loan term for the current balance of $121,259.44 after 5 years:
Remaining Loan Term = Original Loan Term - Time Passed
Remaining Loan Term = 25 years - 5 years
Remaining Loan Term = 20 years

Next, we'll calculate the new monthly payment for a 20-year loan using the current loan balance and interest rate.

Step 1: Calculate Monthly Interest Rate:
Monthly Interest Rate = Annual Interest Rate / 12

Given: Annual Interest Rate = 5.6%
Monthly Interest Rate = 5.6% / 12

Step 2: Calculate Monthly Payment for 20-year loan:
Using the formula for the monthly payment on a fixed-rate mortgage:
Monthly Payment = P * r * (1+r)^n / ((1+r)^n - 1)
Where P is the loan principal, r is the monthly interest rate, and n is the total number of payments.

Given: P = $121,259.44, r = Monthly Interest Rate, n = Remaining Loan Term (20 years)

Now we can calculate the new monthly payment:
Monthly Payment (20 years) = $121,259.44 * r * (1+r)^240 / ((1+r)^240 - 1)

Once you have calculated the new monthly payment for a 20-year loan, subtract the current principle and interest payment of $751.90 from the new monthly payment to find out the additional amount needed.

Additional Amount Needed = New Monthly Payment (20 years) - Current Principle and Interest Payment

Now that you have the additional amount needed, you can compare it with your current monthly expenses to determine if it is reasonable or not.

2.) To determine if refinancing your loan is more or less reasonable, we need to compare the costs and benefits. Refinancing a mortgage involves obtaining a new loan to pay off your existing loan.

Consider the following factors to make an informed decision:

a) Interest Rate: Check different interest rates available for refinancing. Look for lower rates, as that would save you money on interest in the long run.

b) Loan Term: When refinancing, your minimum monthly payments will be based on a thirty-year loan. However, you still want to be done in 20 years. Look for a loan term that aligns with your goal.

c) Upfront Closing Costs: Keep in mind refinancing typically incurs closing costs of a few thousand dollars. Consider if the potential long-term savings on interest outweigh the upfront costs.

By comparing the new interest rate, loan term, and closing costs with your current loan, you can determine if refinancing is a more reasonable option or not. Consider using an online mortgage refinancing calculator to estimate potential savings and compare the options.

Remember, it is advisable to consult with a mortgage advisor or financial professional who can provide personalized advice based on your specific situation and financial goals.