Question

The mortgage on your house is five years old. It required monthly payments of $2300, had an original term of 30 years, and had an interest rate of 9% (APR).

You have decided to refinance. The new mortgage has a 30-year term, requires monthly payments, and has an interest rate of 3% (APR).
What monthly repayments will be required with the new loan?
A. 1423
B. 1300
C. 1203
D. 1156

Answer 1

To calculate the monthly payments on the new loan, use the formula for a fixed-rate mortgage payment. Plugging in the values, the monthly repayments required with the new loan will be approximately $1203.

Step-by-step explanation:

To calculate the monthly payments on the new loan, we can use the formula for a fixed-rate mortgage payment:

Monthly payment = (Loan amount * Monthly interest rate) / (1 - (1 + Monthly interest rate)^(-Number of months))

For the new loan, the loan amount is the same as the original loan, $2300, the monthly interest rate is 3% / 12, and the number of months is 30 * 12 = 360. Plugging these values into the formula, we get:

Monthly payment = (2300 * (0.03 / 12)) / (1 - (1 + (0.03 / 12))^(-360))

Calculating this, we find that the monthly repayments required with the new loan will be approximately $1203. Therefore, the correct answer is C. 1203.