Financial Project

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Submitted By rarnold1010
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Assignment 2: Financial Project

Coming up with a plan to eliminate five years off of a home loan, in my opinion, the first thing to do is verify where you are on the schedule, and change one variable to measure its effect. The variable to be changed would be reducing the remaining amount of time on your loan from 25 years to 20. Next I would gather all the specific information on my loan, then change the amount of time left on my loan and determine the monthly principal and interest payment. The loan was originally for \$141,000. The interest rate was 5.75% fixed. The principal and interest payment is \$822.84. After sixty payments the remaining principal balance is \$130,794.68. The new mortgage payment for principal and interest to reduce the remaining years left on the loan from 25 years to 20 is \$919.29. Next, add that to the \$261.13 escrow for taxes and insurance, and then the total monthly payment is \$1,180.42. This would be a monthly increase of \$95.44. The formula I used is: PMT = (240, 5.75/12, 130.794.68) where 240 = the number of remaining monthly payments, 5.75/12= the monthly interest cost, and \$130,794.68 is the current principal.
This would leave less than \$5.00 to manage its monthly spending. This would make paying off the mortgage five years faster a bad idea because of the normal everyday unexpected things that happen in life. In order to identify the highest interest rate you could refinance at in order to pay the current balance off in 20 years and determine the interest rate, to the nearest quarter point, that would require a monthly total payment that is less than your current total payment. The interest rate that you qualify for will depend, in part, on your credit rating. Also, refinancing costs you \$2,000 up front in closing costs.

Next we solve for an interest rate that would allow us to lower the amount of time left on

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