You purchase a $325,000 town home and you pay 25 percent down. You obtain a 30-year fixed-rate mortgage with an annual interest rate of 5.75 percent. After five years you refinance the mortgage for 25 years at a 5.1 percent annual interest rate. After you refinance,what is the new monthly payment (to the nearest dollar)?

Question

Quizplus · Accepted Answer

First, calculate the original loan amount: 
$325,000 x 0.25 = $81,250 down payment 
$325,000 - $81,250 = $243,750 loan amount

Use a mortgage calculator to find the original monthly payment: 
$243,750 loan amount, 30-year term, 5.75% interest rate = $1,421.60

After five years, the remaining loan balance would be $227,595.

Use a mortgage calculator to find the new monthly payment after refinancing: 
$227,595 loan amount, 25-year term, 5.1% interest rate = $1,335.35

Therefore, the new monthly payment is $1,335 to the nearest dollar, which is answer choice D.

You Purchase a $325,000 Town Home and You Pay 25