Question

18. Kim currently has a thirty-year mortgage with a 6.75% APR and a balance of

$110,749.46. Her monthly payments are $972.90. She decided to refinance
her mortgage with a 30-year mortgage that has a 5.5% APR. Calculate Kim's
new monthly payment.

Answer 1

$626.81

Explanation:

Use the standard formula for computing monthly payments:

Monthly Payment = P * r * (1 + r)^n / ((1 + r)^n - 1) where:

P = Principal balance

r = Monthly interest rate

n = Total number of monthly payments

New Mortgage:

P = $110,749.46 (The balance remains the same)

If the Annual Percentage Rate (APR) = 5.5%

Then, r = APR / 12 / 100 = 5.5 / 12 / 100 = 0.00458333

n = 30 years * 12 months/year = 360

So, we can then compute the new payment:

$110,749.46 * 0.00458333 * (1 + 0.00458333)^360 / ((1 + 0.00458333)^360 - 1)

$626.81