accounting
Answers
a. Your annual payment would be $22,989.75 ($200,000 x 10% / 12 months x (1-1/ (1+10%/12)^360)). b. After one year, the principle balance would be $183,806.74. c. Whether you should refinance your mortgage or invest the $3,000 in a CD will depend on the cost savings from refinancing. You can calculate the cost savings by subtracting the cost of the old mortgage (six payments of $22,989.75) minus the cost of the new mortgage (six payments of $20,135.20) + the $3,000 cost of refinancing and this number needs to be greater than the $3,000 cost of refinancing in order for it to be worthwhile. A. The present value of a mortgage is equal to the period payment times the annuity factor because it represents the amount of money required today to finance a mortgage in the future given a set interest rate over the life of the mortgage and periodic payments. The annuity factor is the discounted value of payments made at the end of each period, compounded at the same rate as the interest rate of the mortgage. In other words, it represents the present value of a series of future payments.