Question

Five years ago, Diane secured a bank loan of $390,000 to help finance the purchase of a loft in the San Francisco Bay area. The term of the mortgage was 30 years, and the interest rate was 8% per year compounded monthly on the unpaid balance. Because the interest rate for a conventional 30-year home mortgage has now dropped to 7% per year compounded monthly, Diane is thinking of refinancing her property. (Round your answers to the nearest cent.)
(a) What is Diane's current monthly mortgage payment?
$ 2861.68
Correct: Your answer is correct.


(b) What is Diane's current outstanding balance?
$



(c) If Diane decides to refinance her property by securing a 30-year home mortgage loan in the amount of the current outstanding principal at the prevailing interest rate of 7% per year compounded monthly, what will be her monthly mortgage payment? Use the rounded outstanding balance.
$



(d) How much less would Diane's monthly mortgage payment be if she refinances? Use the rounded values from parts (a)-(c).
$

Answer 1

current monthly rate = .08/12 = .006666.... (I stored this number)
P( 1 - 1.006......^-360/.0066666..... = 390000
P = 28616.68 <------ your answer.


amount owing after 5 years:
= 390000(1.006666..^60) - 2861.68(1.0066666..^60 - 1)/.0066666...
= ...
this becomes the present value of a mortgage with 7% p.a. compounded monthly

so perform the same calculation you did to find the 2861.68
that is i = .07/12 , n = 12(15) = ..

take over

Answer 2

I assumed that she would simply finish her original 30 year mortgage.
Reading it again, it says she starts a new 30 year mortgage, so n = 30(12)