Question
1. The person is taking a 30-year mortgage (360 monthly payments) with the principal value (present value) of $300,000.00. The annual interest rate (APR) is
1. The person is taking a 30-year mortgage (360 monthly payments) with the principal value (present value) of $300,000.00. The annual interest rate (APR) is 4.2%. Use Excel function PMT to compute the monthly payments on this mortgage.
2. Immediately after taking the mortgage described in the question above, the person learned that it is possible to re-finance the mortgage at a lower interest rate. That is, the person now can take a 30-year mortgage (360 monthly payments), for the same principal amount of $300,000, but at a lower annual rate; the new annual interest rate (APR) is 3.1%. Use Excel function PMT to calculate monthly payments with the new interest rate.
3. Compare your answers to Q1 and Q2 above. What are the savings on each monthly payment?
4. Use the Excel function PV to compute the present value of monthly savings that you determined in Q3. Please remember that there are 360 monthly payments. Also, the annual rate for this calculation (APR) should be the new rate, which equals 3.1%.
Show Excel formulas with the solution.
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