Mr. Miles obtained a fully amortizing loan of $800,000 at 4% p.a. for 25 years. After 5 years, interest rates have dropped, so that a fully amortizing 20-year loan can be obtained at 3.5% p.a. If the refinancing costs is $4,000...

 i. What is the current monthly payment and the total outstanding balance after 5 years?

 ii. If the new lender offers an interest-only mortgage for the next 12 months and the borrower agrees to refinance, what is the new monthly payment after 5 years?

iii. Is refinancing desirable? (3 Marks)

 iv. If the interest-only mortgage payment is maintained for the entire 12 month period, explain how this would impact the loan balance?

Answer rating: 100% (QA)

i To calculate the current monthly payment and the total outstanding balance after 5 years we can use the formula for a fully amortizing loan Loan amo... View the full answer