Explanation:
To calculate the monthly payment savings:
Current mortgage (5%):
$250,000Monthly payment = P × [r(1+r)^n] / [(1+r)^n - 1]
= 250,000 × [0.0041667(1.0041667)^360] / [(1.0041667)^360 - 1]
= 250,000 × [0.0041667 × 4.467744] / [4.467744 - 1]
= 250,000 × [0.018616] / [3.467744]
= 250,000 × 0.005368
= $1,342.05
New mortgage (4%):
Monthly payment = 250,000 × [0.0033333(1.0033333)^360] / [(1.0033333)^360 - 1]
= 250,000 × [0.0033333 × 3.313498] / [3.313498 - 1]
= 250,000 × [0.011045] / [2.313498]
= 250,000 × 0.004774
= $1,193.54
Monthly savings:
$1,342.05 - $1,193.54 = $148.51
The closest answer is USD 145.
Ultimate access to all questions.
A homeowner has a 30-year, 5% fixed-rate mortgage with a current balance of USD 250,000. Mortgage rates have been decreasing. If the existing mortgage was refinanced into a new 30-years, 4% fixed rate mortgage, which of the following is closest to the amount that the homeowner would save in monthly mortgage payments?
A
USD 145
B
USD 150
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