Five (5) years ago, you bought a house for $171,000, with a down payment of $30,000, which meant you took out a loan for $141,000. 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
$261.13
Principle and Interest payment
$822.84
Total Payment
$1,083.97
Current Loan Balance
$130,794.68
Write a one to two (1-2) page paper in which you address the following:
Part 1
With your current loan, explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25. Decide whether or not it would be reasonable to do this if you currently meet your monthly expenses with less than $100 left over.
•(a) Explain your strategy for solving the problem.
•(b) Present a step-by-step solution of the problem.
•(c) Clearly state your answer to Part 1. What is your decision?
Part 2
Identify the highest interest rate you could refinance at in order to pay the current balance off in 20 years and determine the interest rate, to the nearest quarter point, that would require a monthly total payment that is less than your current total payment. The interest rate that you qualify for will depend, in part, on your credit rating. Also, refinancing costs you $2,000 up front in closing costs.
•(a) Explain your strategy for solving the problem.
•(b) Present a step-by-step solution of the problem.
•(c) Clearly state your answer to Part 2. What is your decision?
Five (5) years ago, you bought a house for $171,000, with a down payment of $30,000, which meant you took out a loan for $141,000. 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
$261.13
Principle and Interest payment
$822.84
Total Payment
$1,083.97
Current Loan Balance
$130,794.68
Write a one to two (1-2) page paper in which you address the following:
Part 1
With your current loan, explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25. Decide whether or not it would be reasonable to do this if you currently meet your monthly expenses with less than $100 left over.
•(a) Explain your strategy for solving the problem.
•(b) Present a step-by-step solution of the problem.
•(c) Clearly state your answer to Part 1. What is your decision?
Part 2
Identify the highest interest rate you could refinance at in order to pay the current balance off in 20 years and determine the interest rate, to the nearest quarter point, that would require a monthly total payment that is less than your current total payment. The interest rate that you qualify for will depend, in part, on your credit rating. Also, refinancing costs you $2,000 up front in closing costs.
•(a) Explain your strategy for solving the problem.
•(b) Present a step-by-step solution of the problem.
•(c) Clearly state your answer to Part 2. What is your decision
I need the answer
Part 1:
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, follow these steps:
(a) Strategy:
- Calculate the remaining loan term if you continue making the current monthly payments.
- Find the remaining balance after the calculated period.
- Calculate the new monthly payment required to pay off the loan in 20 years.
- Calculate the difference between the new monthly payment and the current one.
(b) Solution:
1. Calculate the remaining loan term if you continue making the current monthly payments:
Remaining loan term = Original loan term - Number of years already passed
Original loan term = 25 years
Number of years already passed = 5 years
Remaining loan term = 25 - 5 = 20 years
2. Find the remaining balance after the calculated period:
Remaining balance = Current loan balance - (Number of remaining monthly payments * Monthly payment)
Number of remaining monthly payments = Remaining loan term * 12 months
Monthly payment = Principle and Interest payment
Remaining balance = $130,794.68 - (20 * 12 * $822.84)
3. Calculate the new monthly payment required to pay off the loan in 20 years:
New monthly payment = Remaining balance / (Remaining loan term * 12 months)
4. Calculate the difference between the new monthly payment and the current one:
Additional money needed = New monthly payment - Current monthly payment
(c) Answer:
After performing the calculations, you will find the additional money needed to pay off the loan in 20 years instead of 25 years. Based on your current financial situation, where you have less than $100 left over after meeting your monthly expenses, you will need to assess whether it is reasonable to add this additional amount to your monthly payment.
Part 2:
To identify the highest interest rate you could refinance at to pay off the current balance in 20 years and determine the interest rate requiring a monthly total payment less than your current total payment, follow these steps:
(a) Strategy:
- Determine the maximum interest rate that allows the monthly payment to be less than the current total payment.
- Consider the closing costs for refinancing.
(b) Solution:
1. Determine the maximum interest rate:
- Use an amortization calculator to find the monthly payment required to pay off the remaining balance in 20 years.
- Increment the interest rate until the monthly payment is less than the current total payment.
2. Consider closing costs:
- Subtract the closing costs of $2,000 from the remaining balance.
- Use the new balance to recalculate the monthly payment at different interest rates until the monthly payment is less than the current total payment.
3. Round the interest rate to the nearest quarter point.
(c) Answer:
After performing the calculations, you will find the highest interest rate at which you can refinance to pay off the current balance in 20 years with a monthly total payment that is less than your current total payment. Consider the interest rate, closing costs, and your credit rating to determine whether refinancing is a feasible option for you.