01:640:106 Lecture 15: mathematics of money lecture 15
28 Nov 2016
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After making payments on a loan for some period of time (typically years) it is very common for borrowers to take a fresh look a how much they still owe. This process is called re nancing: recall pat and sam"s 30 year mortgage, they borrow ,000 at 6% annual interest. We computed that they make monthly payments of ,798. 65. Suppose that they have already been making mortgage payments for 8 years. How much interest must they still pay? n = 22 x 12 = 264 i = . 06/12 = . 005 pmt = 1798. 65 balance = pv = . 65(a264|. 005) = . 65(146. 3969265) = ,316. 83. Suppose that by the time 8 years have passed since pat and sam bought their house, mortgage rates have dropped to 4. 8% for a 22 year mortgage. If pat and sam re nance in this way by taking out a. Pmt = pv/an|i = #263316. 83/a264|. 04 = 263,316. 83/(1-(1. 04)^-264/. 04)) =
