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Suppose that five years ago, you borrowed $260,000 to purchase your first home. Terms of the loan required monthly payments over 30 years at an interest rate of 6%. Since then, interest rates have decreased to 3.5%. As such, you want to refinance this loan. If you refinance this loan at the current rate for the remaining period (25 years), how much will you save per month in your monthly payment

Answer :

jepessoa

Answer:

You will save $347.62 per month

Explanation:

I prepared an amortization schedule for the original loan using excel. The original monthly payment was $1,558.83. At the end of year 5 (payment number 60), the principal's balance is $241,941.

If you can refinance your loan at 3.5% interest rate, then the new monthly payment will be $1,211.21. I also prepared an amortization schedule, where I changed the interest rate for the next 300 payments.

You will save $1,558.83 - $1,211.21 = $347.62 per month

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