Quincy K Eve
February 20, 2013
I bought a house about five years ago for $171,000. I made a down payment of $ 30,000 which I took out a loan for $141,000.I received a bank statement which indicated that I have a current loan balance of $130,794.68.I am five years into a 30 year loan that has a 5.75% fixed interest rate. Currently I have twenty five years left on my mortgage but I would like to pay it off within 20 years. With my current outstanding balance of $ 130,794.68, I would have to come up with a strategy so I’m able to payoff my loan within twenty years instead of twenty five years. I would use a formula to solve this problem. The calculations I would use is 130,794.68 = P [1 - (1+0.0575/12) ^ (-12*20)] / (0.0575/12). Then I would plug-in the answer for P which would be 918.29, principal +interest. The principal and interest payment on my current loan is $ 822.84 per month. If I increase my monthly payment to $918.29 then I would pay an extra $ 95.45 on my loan. Since I meet my current monthly expenses with less than $100 left over, making an additional mortgage payment would not make sense. I thought paying extra on my mortgage would be a good idea, but after realizing that I wouldn’t have extra spending money I’m looking at refinancing options. I looked at several interest rates I’m going to use the annuity formula to determine what rate would be best for me. The calculations I would use is 30,794.68 = 822.84[1 - (1+r/12) ^ (-12*20)] / (r/12). My new rate will be = to 4.43% then I would lower the rate to the nearest quarter point which is 4.25%. My payments will be lowered to $809.93 with a new interest rate of 4.25% plus $2,000 up front in closing cost and that’s only if I meet the credit rating requirements.
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