I Malcoln and Shannon purchaned their first house with a $180 000 mortenge. 5-year mortgage had Their rmi- mnually compounded interest rate, and was amor- After 3 years, interest rates had fillen significantly In response. Malcolim and 75% annually tized over 25 years. Payments were made monthly Shannon considered paying out the old mortgage (in spite of the interest penaltiens). bank. who laid out their options for them w mortgage at the lower rate. They met with the loans offcer it their Interest on mortgages with a 5-year term was alty for renegotia the 5-year term is the greater of the lowest rate in many years. The loan oficer informed Malcolm and Shannon of the pen- ting a mortgage early, befone the end of the current term. According ontract, the penalty for renegotiating the mortgage before the end of semi-annua A. Three months interest at the original rate of interest. (Banks generally calculate as one month's interest on the mortgage principal remaining to be paid multiplied by three) B. The interest differential over the remainder of the original term. (Banks gener- ally calculate this as the difference between the interest the bank would have earned over the remainder of the original term at the original [higher] mort- gage rate and at the renegotiated (lowerl mortgage rate.) The loans officer also explained that there are two options for paying the penalty amiount: () you ean pay the full amount of the penalty at the beginning of the new mort- gage period. or (2) the penalty amount can be added to the principal when the mortgage is renegotiated, allowing the penalty to be paid off over the term of the new mortgage their final decision. QUESTIONS Malcolm and Shannon agreed to look at their options before giving the loans officer 1. Suppose there was no penalty for refinancing the mortgage after 3 years. How much would Malcolm and Shannon save per month by refinancing their mortgage for a 5-year term at the neww rate 2. Suppose the couple choose to refinance their mortgage for a 5-year term at the new interest rate. (a) What is the amount of penalty A? (b) What is the amount of penalty B (c) What penalty would Malcolm and Shannon have to pay in this situation 3. Ifthey pay the fill amount of the penaly at the beginning of the new S-year term. what will Malcolm and Shannon's new monthly payment bei? 4. If the penalty amount is added to the principal when the mortgage is renegoniated. what will the new monthly nayment be? I Malcoln and Shannon purchaned their first house with a $180 000 mortenge. 5-year mortgage had Their rmi- mnually compounded interest rate, and was amor- After 3 years, interest rates had fillen significantly In response. Malcolim and 75% annually tized over 25 years. Payments were made monthly Shannon considered paying out the old mortgage (in spite of the interest penaltiens). bank. who laid out their options for them w mortgage at the lower rate. They met with the loans offcer it their Interest on mortgages with a 5-year term was alty for renegotia the 5-year term is the greater of the lowest rate in many years. The loan oficer informed Malcolm and Shannon of the pen- ting a mortgage early, befone the end of the current term. According ontract, the penalty for renegotiating the mortgage before the end of semi-annua A. Three months interest at the original rate of interest. (Banks generally calculate as one month's interest on the mortgage principal remaining to be paid multiplied by three) B. The interest differential over the remainder of the original term. (Banks gener- ally calculate this as the difference between the interest the bank would have earned over the remainder of the original term at the original [higher] mort- gage rate and at the renegotiated (lowerl mortgage rate.) The loans officer also explained that there are two options for paying the penalty amiount: () you ean pay the full amount of the penalty at the beginning of the new mort- gage period. or (2) the penalty amount can be added to the principal when the mortgage is renegotiated, allowing the penalty to be paid off over the term of the new mortgage their final decision. QUESTIONS Malcolm and Shannon agreed to look at their options before giving the loans officer 1. Suppose there was no penalty for refinancing the mortgage after 3 years. How much would Malcolm and Shannon save per month by refinancing their mortgage for a 5-year term at the neww rate 2. Suppose the couple choose to refinance their mortgage for a 5-year term at the new interest rate. (a) What is the amount of penalty A? (b) What is the amount of penalty B (c) What penalty would Malcolm and Shannon have to pay in this situation 3. Ifthey pay the fill amount of the penaly at the beginning of the new S-year term. what will Malcolm and Shannon's new monthly payment bei? 4. If the penalty amount is added to the principal when the mortgage is renegoniated. what will the new monthly nayment be