Loan Option 1: 279,000; 5.3875%; 30 years with 1 point

Loan Option 2: $279,000; 5.875%; 30 years with no points

If you decide to take Loan Option 1 that offers the points, and you have already calculated the principal loan balance after 7 years. Now you decide to refinance after (use the principal loan balance after 7 years) for a 30 year loan at 4.10% with $2,650 of closing costs. What is your new payment and how long will it take for you to break even from refinancing?

a.)

monthly payment = $1,344.84

break even piont = 9.72 months

b.)

monthly payment = $1,275.75

break even piont = 8.34 months

c.)

monthly payment = $1,597.49

break even piont = 7.00 months

d.)

monthly payment = $1,194.76

break even piont = 7.27 months

answer

watching

179

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Trinidad TremblayLv2

28 Sep 2019

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

5. You borrowed $3000 at 9% per annuum calculated on the unpaid monthly balance and agreed to repay the principal together with interest in monthly payments of $500 each.ï¼1ï¼How much is the outstanding balance of the loan right after the first payment?ï¼2ï¼ How much is the outstanding balance of the loan right after the second payment?ï¼3ï¼How many $500 payments will be made before the last smaller payment to pay off the loan?ï¼4ï¼ How much will be the last payment?

6. $850 was invested in an bank account at interest 3.6% compounded quarterly for four years.ï¼1ï¼How much money will be in the account at the end of four years?ï¼2ï¼ How much interest will be from this investment at the end of four year?

7. $1500 are invested at 7.2% compounded monthly for seven years.ï¼1ï¼How much is the mature value at the end?ï¼2ï¼How much interest will be earned at the end?

8. David borrowed $5000 at 10% compounded semi-annually. He repaid $2000 after two years from now and $2500 after three years from now.ï¼1ï¼How much is the outstanding balnce of his debt right after his payment at the end of two years?ï¼2ï¼How much is the outstanding balnce of his debt right after his payment at the end of three years?ï¼ï¼3ï¼How much will he still owe after five years?

9. A variable rate demand loan showed an initial balance of $12000, payments of $5000 after 18 months, $4000 after 30 months, and a final payment after 5 years.Interest was 11% compounded semi-annually for the first two years and 7.5% compounded monthly for the remaining time.ï¼1ï¼What is the outstanding balance of the loan after the first payment at the end of 18 months?ï¼2ï¼ What is the outstanding balance of the loan after the second payment at the end of 30 months?ï¼3ï¼What was the size of the final payment?

10. You made a registered retirement savings plan deposit of $1000 on December 1, 2008, at a fixed interest rate of 3% compounded monthly. If you withdraw the deposit on August 1, 2015, how much will you receive? How much interest will you have made?

champagnecockroach151

CHAPTER CASE S&S AIRâS MORTGAGE Mark Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financial planning. Using Chrisâs analysis, and looking at the demand for light aircraft, they have decided that their existing fabrication equipment is sufficient, but it is time to acquire a bigger manufacturing facility. Mark and Todd have identified a suitable structure that is currently for sale, and they believe they can buy and refurbish it for about $35 million. Mark, Todd, and Chris are now ready to meet with Christie Vaughan, the loan officer for First United National Bank. The meeting is to discuss the mortgage options available to the company to finance the new facility. Christie begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly installments. Because of the previous relationship between S&S Air and the bank, there would be no closing costs for the loan. Christie states that the APR of the loan would be 6.1 percent. Todd asks if a shorter mortgage loan is available. Christie says that the bank does have a 20-year mortgage available at the same APR. Mark decides to ask Christie about a âsmart loanâ he discussed with a mortgage broker when he was refinancing his home loan. A smart loan works as follows: Every two weeks a mortgage payment is made that is exactly one-half of the traditional monthly mortgage payment. Christie informs him that the bank does have smart loans. The APR of the smart loan would be the same as the APR of the traditional loan. Mark nods his head. He then states this is the best mortgage option available to the company since it saves interest payments. Christie agrees with Mark, but then suggests that a bullet loan, or balloon payment, would result in the greatest interest savings. At Toddâs prompting, she goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would mean that the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, but immediately after the company makes the 60th payment, the bullet payment would be due. The bullet payment is the remaining principal of the loan. Chris then asks how the bullet payment is calculated. Christie tells him that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25 years of mortgage payments for the 30-year mortgage. Todd has also heard of an interest-only loan and asks if this loan is available and what the terms would be. Christie says that the bank offers an interest-only loan with a term of 10 years and an APR of 3.5 percent. She goes on to further explain the terms. The company would be responsible for making interest payments each month on the amount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the $35 million. However, the company can make principal payments at any time. The principal payments would work just like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce the interest due on the next payment. Mark and Todd are satisfied with Christieâs answers, but they are still unsure of which loan they should choose. They have asked Chris to answer the following questions to help them choose the correct mortgage. QUESTIONS 1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-year traditional mortgage? 2. Prepare an amortization table for the first six months of the traditional 30-year mortgage. How much of the first payment goes toward principal? 3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Why is this shorter than the time needed to pay off the traditional mortgage? How much interest would the company save? 4. Assume S&S Air takes out a bullet loan under the terms described. What are the payments on the loan? 5. What are the payments for the interest-only loan? 6. Which mortgage is the best for the company? Are there any potential risks in this action? (Ross 165) Ross, Stephen, Randolph Westerfield, Bradford Jordan. Essentials of Corporate Finance, 8th Edition. McGraw-Hill Learning Solutions, 01/2013. VitalBook file.

Mark Sexton and Todd Story, the owners of S&S Air, Inc., were impressed by the work Chris had done on financial planning. Using Chrisâs analysis, and looking at the demand for light aircraft, they have decided that their existing fabrication equipment is sufficient, but it is time to acquire a bigger manufacturing facility. Mark and Todd have identified a suitable structure that is currently for sale, and they believe they can buy and refurbish it for about $35 million. Mark, Todd, and Chris are now ready to meet with Christie Vaughan, the loan officer for First United National Bank. The meeting is to discuss the mortgage options available to the company to finance the new facility. Christie begins the meeting by discussing a 30-year mortgage. The loan would be repaid in equal monthly installments. Because of the previous relationship between S&S Air and the bank, there would be no closing costs for the loan. Christie states that the APR of the loan would be 6.1 percent. Todd asks if a shorter mortgage loan is available. Christie says that the bank does have a 20-year mortgage available at the same APR. Mark decides to ask Christie about a âsmart loanâ he discussed with a mortgage broker when he was refinancing his home loan. A smart loan works as follows: Every two weeks a mortgage payment is made that is exactly one-half of the traditional monthly mortgage payment. Christie informs him that the bank does have smart loans. The APR of the smart loan would be the same as the APR of the traditional loan. Mark nods his head. He then states this is the best mortgage option available to the company since it saves interest payments. Christie agrees with Mark, but then suggests that a bullet loan, or balloon payment, would result in the greatest interest savings. At Toddâs prompting, she goes on to explain a bullet loan. The monthly payments of a bullet loan would be calculated using a 30-year traditional mortgage. In this case, there would be a 5-year bullet. This would mean that the company would make the mortgage payments for the traditional 30-year mortgage for the first five years, but immediately after the company makes the 60th payment, the bullet payment would be due. The bullet payment is the remaining principal of the loan. Chris then asks how the bullet payment is calculated. Christie tells him that the remaining principal can be calculated using an amortization table, but it is also the present value of the remaining 25 years of mortgage payments for the 30-year mortgage. Todd has also heard of an interest-only loan and asks if this loan is available and what the terms would be. Christie says that the bank offers an interest-only loan with a term of 10 years and an APR of 3.5 percent. She goes on to further explain the terms. The company would be responsible for making interest payments each month on the amount borrowed. No principal payments are required. At the end of the 10-year term, the company would repay the $35 million. However, the company can make principal payments at any time. The principal payments would work just like those on a traditional mortgage. Principal payments would reduce the principal of the loan and reduce the interest due on the next payment. Mark and Todd are satisfied with Christieâs answers, but they are still unsure of which loan they should choose. They have asked Chris to answer the following questions to help them choose the correct mortgage. QUESTIONS 1. What are the monthly payments for a 30-year traditional mortgage? What are the payments for a 20-year traditional mortgage? 2. Prepare an amortization table for the first six months of the traditional 30-year mortgage. How much of the first payment goes toward principal? 3. How long would it take for S&S Air to pay off the smart loan assuming 30-year traditional mortgage payments? Why is this shorter than the time needed to pay off the traditional mortgage? How much interest would the company save? 4. Assume S&S Air takes out a bullet loan under the terms described. What are the payments on the loan? 5. What are the payments for the interest-only loan? 6. Which mortgage is the best for the company? Are there any potential risks in this action?

coralsheep328

Weekly leaderboard

Home

Homework Help 3,900,000

Finance 370,000