Five years ago, you bought a house for $151,000, with a down payment of $30, 000, which meant you took out a loan for $121,000. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information.

Escrow payment $211.13
Principle and Interest payment $706.12
Total Payment $917.25
Current Loan Balance $112,247.47

The Questions

How much additional money would you need to add to your monthly payment to pay off your loan in 20 years instead of 25? If you currently meet your monthly expenses with less than $100 left over, would it be reasonable to do this?

Pt = Po*r*t / (1-(1+r))^-t.

r = (5.75%/12) / 100% = 0.004791666667 =Monthly % rate expressed as a decimal.

t = 12 mo/yr * 20 yrs = 240 Months.

Pt=112247.47*0.00480*240/(1-(1.00480)^-240 = $189,137.05

Monthly(I+P) = Pt / t = 189137.05/240 =
$788.07 / mo.

Increase = 788.07 - 706.12 = $81.95.

NO, don't do it!

Expected Value to assess the fairness of the risk. Provide one example to show how you can use the Expected Value computation to assess the fairness of a situation (probability experiment). Provide the detailed steps and calculations.

To determine how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25, we first need to calculate the remaining term of the loan.

Since the loan was taken out 5 years ago and you want to pay it off in 20 years instead of 25, we need to deduct the elapsed time (5 years) from the original loan term (25 years). This gives us a remaining term of 20 - 5 = 15 years.

Next, we need to calculate the monthly payment required to pay off the loan in the remaining term. To do this, we can use a loan amortization schedule formula. This formula takes into account the loan amount, interest rate, and remaining term.

Based on the given loan balance of $112,247.47, remaining term of 15 years, and a fixed interest rate of 5.75%, we can calculate the new monthly payment:

PMT = PV / [(1 - (1 + r)^-n) / r]

Where:
PMT = Monthly payment
PV = Present value (loan balance)
r = Monthly interest rate (annual rate divided by 12)
n = Number of monthly payments (remaining term in years multiplied by 12)

PV = $112,247.47
r = 5.75% / 12 = 0.00479 (monthly interest rate)
n = 15 years * 12 = 180 months

PMT = $112,247.47 / [(1 - (1 + 0.00479)^-180) / 0.00479]
= $946.10

Therefore, the new monthly payment required to pay off your loan in 20 years would be $946.10.

Now, let's determine if it would be reasonable to add this additional amount to your monthly payment. If you currently meet your monthly expenses with less than $100 left over, you need to evaluate if you can afford the increase.

Consider your current financial situation and budget. Calculate your total monthly income and expenses, including your current mortgage payment and other financial obligations. Subtract all expenses from your total income to get your disposable income.

If your disposable income is significantly greater than the additional amount needed ($946.10 - $706.12 = $239.98), it may be reasonable to increase your monthly payment. However, if your disposable income is less than the additional amount or if it leaves you with minimal savings, it might not be advisable to add more to your monthly payment.

Carefully assess your financial situation and consider factors such as emergency savings, other financial goals, and potential changes in income before making a decision. It may be wise to consult a financial advisor for personalized advice based on your specific circumstances.