. Assume you have just taken a 30-year mortgage of $550,000 at 9% with monthly compounding. Further, suppose that in 10 years (immediately after the 120th payment) interest rates fall to 6% with monthly compounding. You decide to refinance at that time to a 15-year loan at the new lower rate. Assume refinancing costs are 2% of the amount refinanced and will be rolled into the new loan. Find your new payment for the refinanced loan.
Question 1. Assume you have just taken a 30-year mortgage of $550,000 at 9% with monthly compounding. Further, suppose that in 10 years (immediately after the 120th payment) interest rates fall to 6% with monthly compounding. You decide to refinance at that time to a 15-year loan at the new lower rate. Assume refinancing costs are 2% of the amount refinanced and will be rolled into the new loan. Find your new payment for the refinanced loan.
Question 2. Suppose you deposit $100,000 per year in a savings account paying 8% interest for 10 years. You wish to withdraw the funds in 5 equal installments, one year apart, starting in year 11 and have a balance remaining in your account of $75,000 immediately after you make your fifth withdrawal. How much can you withdraw per year? HINT: A timeline will help with this.
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