21:05 Conterrp()rary Business Mat > Case Study Managing a Mortgage Malcoim and Shannon purchasec their first huuse willa$1a0 0 urlgage. Tlieir 5yar interest ate, and was ortized over 25 years. Peyments were made monthy After yrrs, t rte hixd rii:gnific:ril,y In response, Malcolm and Srannon considcred payng out the old mortpage in spite of the inter- es: penaltiesi. and negotaing a new mortgage at the lower rae. They met with the loans ott cer at rLk.who laid c! lhe uplius cr e Interest on mortgages wit a E-year tem waa iri rray yirs. Th l offc:er iifd Mal:or and Shamon of the penalty for renegotiating a mo t age eary. before the end of the cuTent em. According :o the ortgage contract, tre penalty for renegctiati g the mcrtgage betcre the A. Ihres menths interet at the criginal rste ot inte est. IBanks geneally calculate this aa one B. The intersst differsntial over he remainder of the origine term. Banks generally calclae hie a the difterance between the intereet the bank-roud have earned over the remainder mo tgage rata The loans officer also expained hat trere are twwo cptions for paying the penalty amount: i1 you can pay the tull amourt of tre penalty a1 the beginning of the e crgag peria, 2 penaly amouri can be adcd to the prinip weri the mo tgage is renegotiatsd, allowing the penalty to be peic d off over the term of the ne nortgage. Mlakclm and Sharnon agroed to look a:their op ions before giving tre oans officer treir final de- ciion. 1 Suppose ther was rio prialty for firaricing the mortgage after 3 yeaurs. How much wculd Malcolm and Shamon save per month by refi- nanding their mortgage tor a E-year term at he ne rate? rmortgage for a -year teat the ne interest rata a. at is the amount of penalty A? i. VVhal isthe amuunt uf penallyB? . xral Mal: 3hon haye to pay n thssituation? 3 lt they pay 1he-ul amount ol lhe pensity at the beginning hene 5-year tem. wwat vill blak:ad Sains new iunthly pay 4, IH the ponialty arourt is added to tha princial when the mortgege is renegotated, what wil the ne nenthly psyment be? Challenge Problems Page 1 21.051 Business Mat Malcoim and Shannon purchased th house with &$180 000 motgage. Their S-year mortgage had a 75% semannaly oompounded was amorticed over Paymants were made monty ter 3 yearnt, ineret rates had tallen signficantly In response, Malcolm paying out the old mortgage nsphe of the inter- the lower rate. They met with the loars officer at their bank, who laid out their options for t nterest on mortgages with a 5-year was 5.5% compounded loan office the penaty and Shannom o gage early, befione the t am. Acconding to their mortgage contra and of the 5-year tem is the greater ot A Three months intenest at the original rate ct,the nterest Banks generally calculabe this as one maining to be paid, multiplied by ree he original term. Manks generaly calculate The interest diferential over the emainder of the intenest the bank woud have of the original erm at the original highe mortgage rate and at the enegotiated power The loans officer aso explained that there are two options for payling the penaty amount () you can pay the full amount of the penaity at the begining of the new mogage period, or (2) the penaity mortgage is renegoniated alowing the penalty t0 be paid off over the term of the new motgage ons before giving the loans officer their final de- Questions he mortgage after 3 years. How much woud Maloolm and Shannon save per month by rf nanding ther morngage for a 5-year term at 2. Suppose the couple choose to refinance their page for a S-year em at the new interest a. What is the amount of penaity A? b. What is the amount of penaity 8 a. What penaity would Malcolm and Shannon 3. Ithey pay the full amount of the penaity at the tepnrng ofthe new 5-year term. what w Maloolm and Saon's new monthly pay I the penalty amount is added to the pricipal when the mortgage is renegotated, what he new monthly payment be? 21:05 Conterrp()rary Business Mat > Case Study Managing a Mortgage Malcoim and Shannon purchasec their first huuse willa$1a0 0 urlgage. Tlieir 5yar interest ate, and was ortized over 25 years. Peyments were made monthy After yrrs, t rte hixd rii:gnific:ril,y In response, Malcolm and Srannon considcred payng out the old mortpage in spite of the inter- es: penaltiesi. and negotaing a new mortgage at the lower rae. They met with the loans ott cer at rLk.who laid c! lhe uplius cr e Interest on mortgages wit a E-year tem waa iri rray yirs. Th l offc:er iifd Mal:or and Shamon of the penalty for renegotiating a mo t age eary. before the end of the cuTent em. According :o the ortgage contract, tre penalty for renegctiati g the mcrtgage betcre the A. Ihres menths interet at the criginal rste ot inte est. IBanks geneally calculate this aa one B. The intersst differsntial over he remainder of the origine term. Banks generally calclae hie a the difterance between the intereet the bank-roud have earned over the remainder mo tgage rata The loans officer also expained hat trere are twwo cptions for paying the penalty amount: i1 you can pay the tull amourt of tre penalty a1 the beginning of the e crgag peria, 2 penaly amouri can be adcd to the prinip weri the mo tgage is renegotiatsd, allowing the penalty to be peic d off over the term of the ne nortgage. Mlakclm and Sharnon agroed to look a:their op ions before giving tre oans officer treir final de- ciion. 1 Suppose ther was rio prialty for firaricing the mortgage after 3 yeaurs. How much wculd Malcolm and Shamon save per month by refi- nanding their mortgage tor a E-year term at he ne rate? rmortgage for a -year teat the ne interest rata a. at is the amount of penalty A? i. VVhal isthe amuunt uf penallyB? . xral Mal: 3hon haye to pay n thssituation? 3 lt they pay 1he-ul amount ol lhe pensity at the beginning hene 5-year tem. wwat vill blak:ad Sains new iunthly pay 4, IH the ponialty arourt is added to tha princial when the mortgege is renegotated, what wil the ne nenthly psyment be? Challenge Problems Page 1 21.051 Business Mat Malcoim and Shannon purchased th house with &$180 000 motgage. Their S-year mortgage had a 75% semannaly oompounded was amorticed over Paymants were made monty ter 3 yearnt, ineret rates had tallen signficantly In response, Malcolm paying out the old mortgage nsphe of the inter- the lower rate. They met with the loars officer at their bank, who laid out their options for t nterest on mortgages with a 5-year was 5.5% compounded loan office the penaty and Shannom o gage early, befione the t am. Acconding to their mortgage contra and of the 5-year tem is the greater ot A Three months intenest at the original rate ct,the nterest Banks generally calculabe this as one maining to be paid, multiplied by ree he original term. Manks generaly calculate The interest diferential over the emainder of the intenest the bank woud have of the original erm at the original highe mortgage rate and at the enegotiated power The loans officer aso explained that there are two options for payling the penaty amount () you can pay the full amount of the penaity at the begining of the new mogage period, or (2) the penaity mortgage is renegoniated alowing the penalty t0 be paid off over the term of the new motgage ons before giving the loans officer their final de- Questions he mortgage after 3 years. How much woud Maloolm and Shannon save per month by rf nanding ther morngage for a 5-year term at 2. Suppose the couple choose to refinance their page for a S-year em at the new interest a. What is the amount of penaity A? b. What is the amount of penaity 8 a. What penaity would Malcolm and Shannon 3. Ithey pay the full amount of the penaity at the tepnrng ofthe new 5-year term. what w Maloolm and Saon's new monthly pay I the penalty amount is added to the pricipal when the mortgage is renegotated, what he new monthly payment be