The mortgage on your house is five years old. It required monthly payments of $1402, had an original term of 30 years, and had an interest rate of 10% (APR). In the intervening five years, interest rates have fallen and so you have decided to refinance—that is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of
- a. What monthly repayments will be required with the new loan?
- b. If you still want to pay off the mortgage in 25 years, what monthly payment should you make after you refinance?
- c. Suppose you are willing to continue making monthly payments of $1402. How long will it take you to pay off the mortgage after refinancing?
- d. Suppose you are willing to continue making monthly payments of $1402, and want to pay off the mortgage in 25 years. How much additional cash can you borrow today as part of the refinancing?
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