Question

FreddieMac reports that the average rate on a 30-year fixed rate mortgage is 3.92% as of January 2012. This is down from 4.76% in January 2011 and 5.03% in January 2010. If you have a $225,000, 5%, 30-year mortgage, how much interest will you save if you refinance your loan at 3.5% for 15 years?

Answer 1

A. P1 = Po*r*t/(1-(1+r)^-t)

Po = $225,000

r = (5%/12)/100% = 0.004167 = Monthly %
rate expressed as a decimal.

t = 12mo/yr * 30yrs = 360 Months.

Plug the above values in the given Eq and get:
P1 = $434,810.88
I = P1-Po

B. P2 = (Po*r*t)/(1-(1+r)^-t)
Use same procedure as A.