Answer :
Loan present value (PV) = $275,000
Interest rate = 6% for first 15 years, compounded
monthly = 6/12 = 0.50%
Loan period [NPER] = 25 years, Monthly = 25*12 =
300
Refinance the mortgage with a 10 year mortgage, so that
you pay $100 less each month
To find the monthly nominal interest rate corresponding
to this new mortgage we have to use PMT, PV and RATE function in
excel
| PV |
-275,000 |
| NPER |
300 |
| Monthly interest rate |
0.50% |
| Monthly payment |
$1,771.83 |
|
|
| Remaining NPER |
120 |
| PV |
$159,594.74 |
| Monthly payment |
$1,671.83 |
| Monthly interest rate |
0.3942% |
Therefore monthly nominal interest rate corresponding to
this new mortgage will be approximately 0.39%
Working
| - |
A |
B |
| 1 |
PV |
-275000 |
| 2 |
NPER |
=25*12 |
| 3 |
Monthly interest rate |
=6%/12 |
| 4 |
Montly payment |
=PMT(B3,B2,B1,0) |
| 5 |
- |
- |
| 6 |
Remaining NPER |
=10*12 |
| 7 |
PV |
=PV(B3,B6,-B4,0) |
| 8 |
Monthly payment |
=B4-100 |
| 9 |
Montly interest rate |
=RATE(B6,-B8,B7,0) |
