By: Erika Nordstrom
Professor: John M. Gillis Ph.D.
August 10, 2012
Assignment 1: Financial Project
Five years ago, you bought a house for $151,000.00 with a down payment of $30,000, which meant you took a loan for $121,000.00. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information:
Escrow Payment: $211.13
Principle And Interest Payment: $706.12
Total Payment: $917.25
Current Loan Balance: $112,242.47
Explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25 years. If you took 25 years to pay off your loan the monthly payment would be $761.22 per month. If it took 20 years to pay off your loan the monthly payments would be $849.52 per month. So if you wanted to pay off the loan in 20 years you would need to raise your total monthly payment by $88.30 per month.
Explain whether or not it would be reasonable to do this if you currently meet your monthly expenses with less than $100.00 left over. Yes you would be able to meet your monthly expenses. Again, if the monthly payment is only $88.30 over your normal payment and you have less than $100.00 left over than you could make the additional monthly payment. But that would not leave much money left over after you made the additional monthly payment.
It might be possible to pay the current balance off in 20 years if you refinanced the loan at a lower interest rate. The interest rate that you will qualify for will depend, in part, on your credit rating. Identify the highest interest rate you could refinance at in order to do this and determine the interest rate that would require a monthly total payment that is less than your current total payment. Also, refinancing costs you $2000.00 up-front in closing costs.
3.75=$665.47 Per Month
4.00=$680.17 Per Month
4.25=$695.04 Per Month
4.50=$710.10 Per Month
4.75=$725.34 Per Month