The mortgage on your house is 5 years old. It required monthly payments of 1,422, had an original term of 30 years, and had an interest rate of 10% (APR –monthly). In the intervening 5 years, interest rates have fallen and so you have decided to refinance – that is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of 6.625% (APR – monthly).
a) What monthly repayments will be required with the new loan?
b) If you still want to pay off the mortgage in 25 years, what monthly payment should you make after you refinance?
c) Suppose you are willing to continue making payments of 1422. How long will it take you to pay off the mortgage after refinancing?
d) Suppose you are willing to continue making payments of 1422, and want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the refinancing?