use a financial calculator. Present value = $110,000, future value = 0 (as you have paid off the loan at that point), 12 payments per year, n = 240 (number of payments), interest = 12%, solve for payment (usually "pmt"). Once you have the payment multiply by 240, the number of payment, to solve for the total amount paid by the sandersons in P&I, principal and interest. The subtract out the principal from the P&I figure to get what they paid in interest alone. We will call this "A"
Then do all of this again, but this time use 7% as your interest, set your calculator up to compound monthly, not annually (financial calculators differ so I have no way of telling you how to do this on yours but look in your manual if you have it). Do the above to see what they paid in interest alone on this 7% compounded monthly. We can call this "B"
Finally subtract "A" from "B" and you have your answer.
The Sandersons are planning to refinance their home. The outstanding principal on their original loan is $100,000 and was to amortized in 240 equal monthly installments at an interest rate of 11%/year compounded monthly. The new loan they expect to secure is to be amortized over the same period at an interest rate of 8%/year compounded monthly. How much less can they expect to pay over the life of the loan in interest payments by refinancing the loan at this time? (Round your answer to the nearest cent.)
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