A husband and wife buy a new home and take out a $100000 mortgage loan with level annual payments at the end of each year for 15 years on which the effective rate of interest is equal to 5.5%. At the end of 5 years they decide to make a maj se and want to borrow an additional $70000 to finance the new construction. They also wish to lengthen the overall length of the loan by 8 years (.e. until 23 years after the date of the original loan). In the negotiations the lender agrees to these only if the effective interest rate for the remainder of the loan after the first 5 years is raised to 6.5%. Find the revised annual payment which would result for the remainder of the loan.

A husband and wife buy a new home and take out a $100000 mortgage loan with level annual payments at the end of each year for 15 years on which the effective rate of interest is equal to 5.5%. At the end of 5 years they decide to make a maj se and want to borrow an additional $70000 to finance the new construction. They also wish to lengthen the overall length of the loan by 8 years (.e. until 23 years after the date of the original loan). In the negotiations the lender agrees to these only if the effective interest rate for the remainder of the loan after the first 5 years is raised to 6.5%. Find the revised annual payment which would result for the remainder of the loan.

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter27: Time Value Of Money (compound)

Section: Chapter Questions

Problem 5E

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

A husband and wife buy a new home and take out a $100000 mortgage loan with level annual payments at the end of each year for 15 years on which the effective rate of interest is equal to 5.5%. At the end of 5 years they decide to make a major
addition to the house and want to borrow an additional $70000 to finance the new construction. They also wish to lengthen the overall length of the loan by 8 years (i.e. until 23 years after the date of the original loan). In the negotiations the lender agrees to these
modifications, but only if the effective interest rate for the remainder of the loan after the first 5 years s raised to 6.5%. Find the revised annual payment which would result for the remainder of the loan.
ANSWER = $

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