Use Worksheet 5.4. Miao Tian purchased a condominium four years ago for $180,000, paying $1,250 per month on her $162,000, 8 percent, 25-year mortgage. The current loan balance is $152,401. Recently, interest rates have dropped sharply, causing Miao to consider refinancing her condo at the prevailing rate of 6 percent. She expects to remain in the condo for at least four more years and has found a lender that will make a 6 percent, 21-year, $152,401 loan requiring monthly payments of $1,065. Although there is no prepayment penalty on her current mortgage, Miao will have to pay $1,500 in closing costs on the new mortgage. She is in the 15 percent tax bracket. Based on this information, use the mortgage refinancing analysis form in Worksheet 5.4 to determine whether she should refinance her mortgage under the specified terms.
Answer to relevant QuestionsHow much would you have to put down on a house costing $100,000 if the house had an appraised value of $105,000 and the lender required an 80 percent loan-to-value ratio?Why do people borrow? What are some improper uses of credit?What are the basic features of a home equity credit line?What is the most common method used to compute finance charges?Use Worksheet 6.1. Rebecca Collins is evaluating her debt safety ratio. Her monthly take-home pay is $3,320. Each month, she pays $380 for an auto loan, $120 on a personal line of credit, $60 on a department store charge ...
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