A new office building was constructed 5 years ago by a consulting engineering firm. At that time the firm obtained a bank loan for $600,000 with a 12% annual interest rate, compounded quarterly. The loan terms call for equal quarterly payments for 10 years. The loan also allows for its prepayment at any time without penalty. The firm proposes to refinance the loan through an insurance company. The new loan would be for a 20-year term with an interest rate of 8% per year, compounded quarterly. The insurance company requires the payment of a 5% loan initiation charge (often described as a “5-point loan fee”), which will be added to the starting balance. (a) What is the balance due on the original mortgage if 16 payments have been made? (b) What is the difference between the old and new quarterly payments?
A new office building was constructed 5 years ago by a consulting engineering firm. At that time the firm obtained a bank loan for $600,000 with a 12% annual interest rate, compounded quarterly. The loan terms call for equal quarterly payments for 10 years. The loan also allows for its prepayment at any time without penalty. The firm proposes to refinance the loan through an insurance company. The new loan would be for a 20-year term with an interest rate of 8% per year, compounded quarterly. The insurance company requires the payment of a 5% loan initiation charge (often described as a “5-point loan fee”), which will be added to the starting balance. (a) What is the balance due on the original mortgage if 16 payments have been made? (b) What is the difference between the old and new quarterly payments?
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