Question

You purchased a house five years ago and borrowed $600,000 . The loan you used has 300 more monthly payments of $2,864 each, starting next month, to pay off the loan. You can take out a new loan for $542,685 at 3.00% APR compounded monthly , with 300 more payments, starting next month to pay off this new loan. and pay off the old loan. If your investments earn 3.00% APR compounded monthly , how much will you save in present value terms by using the new loan to pay-off the original loan? There may be rounding in this case , so pick the closest answer. Group of answer choices a. $59,481 b. $64,328 c. $61,265 d. $57,748 e. $62,455

Answer 1

c. $61,265

Step-by-step explanation:

monthly payment under new loan = PMT(3%/12,300,-542685,0,0)

= $2573.47

saving in payment per month = 2864 - 2573.47

= $290.53

PV of interest savings = PV(3%/12,300,290.53,0,0)

= $61,266

Therefore, will save $61,266 in present value terms by using the new loan to pay-off the original loan.