Math Problem Statement
Question content area top Part 1 The mortgage on your house is 55 years old. It required monthly payments of $1 comma 434.861,434.86, had an original term of 3030 years, and had an interest rate of 8 %8% (APR). In the intervening 55 years, interest rates have fallen and so you have decided to refinancelong dash—that is, you will roll over the outstanding balance into a new mortgage. The new mortgage has a 3030-year term, requires monthly payments, and has an interest rate of 6.625 %6.625% (APR). a. What monthly repayments will be required with the new loan? b. If you still want to pay off the mortgage in 2525 years, what monthly payment should you make after you refinance? c. Suppose you are willing to continue making monthly payments of $1 comma 434.861,434.86. How long will it take you to pay off the mortgage after refinancing? d. Suppose you are willing to continue making monthly payments of $1 comma 434.861,434.86, and want to pay off the mortgage in 2525 years. How much additional cash can you borrow today as part of the refinancing? (Note: Be careful not to round any intermediate steps less than six decimal places.)
Solution
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Math Problem Analysis
Mathematical Concepts
Loan Amortization
Interest Rates
Time Value of Money
Algebra
Formulas
Loan Balance Formula: B = P × ((1 + r)^n - (1 + r)^t) / ((1 + r)^n - 1)
Monthly Payment Formula: P = B × (r(1 + r)^n) / ((1 + r)^n - 1)
Theorems
Amortization Theorem
Suitable Grade Level
Undergraduate or Graduate Level (Financial Mathematics)
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