Explain how much additional money you would need to add

| August 30, 2017

Question
· Assignment 1: Financial Project
Due Week 6 and worth 15 points

Five years ago, you bought a house for $151,000, with a down payment of $30,000, which meant you took out a loan for $121,000. Your interest rate was 5.75% fixed. You would like to pay more on your loan. You check your bank statement and find the following information:

Escrow payment

$211.13

Principle and Interest payment

$706.12

Total Payment

$917.25

Current Loan Balance

$112,242.47

Write a 1-2 page paper in which you:

1. Explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.

2. Explain whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.

3. It might be possible to pay the current balance off in 20 years if you refinanced the loan at a lower interest rate. The interest rate that you qualify for will depend, in part, on your credit rating. Identify the highest interest rate you could refinance at in order to do this and determine the interest rate that would require a monthly total payment that is less than your current total payment. Also, refinancing costs you $2000 up-front in closing costs.

4. Explain whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates. Know that if you refinance, your minimum monthly payments will be based on a 30-year loan (though you still want to be done in 20 years). Also, refinancing costs you a couple of thousand dollars up front in closing costs.

To work on this problem, you may use Table 1 or a mortgage calculator from the Internet.

Table 1.

Note: This is the same type of table as Table 7.2 on page 166 of the text, except that the monthly cost is carried out to more decimal places, to minimize round-off error when using the chart. Also, the values are more in line with today’s prevailing mortgage rates and with the problem at hand.

Monthly Cost to Finance $1,000

Rate of Interest

Number of Years Financed

5 Years

10 Years

15 Years

20 Years

25 Years

30 Years

N = 60

N=120

N=180

N=240

N=300

N=360

3.75

18.3039

10.0061

7.2722

5.9289

5.1413

4.6312

4.00

18.4165

10.1245

7.3969

6.0598

5.2784

4.7742

4.25

18.5296

10.2437

7.5228

6.1924

5.4174

4.9194

4.50

18.6430

10.3638

7.6499

6.3265

5.5583

5.0669

4.75

18.7569

10.4848

7.7783

6.4622

5.7012

5.2165

5.00

18.8712

10.6065

7.9079

6.5996

5.8459

5.3682

5.25

18.9860

10.7292

8.0388

6.7384

5.9925

5.5220

5.50

19.1012

10.8526

8.1708

6.8789

6.1409

5.6779

5.75

19.2168

10.9769

8.3041

7.0208

6.2911

5.8357

6.00

19.3328

11.1021

8.4386

7.1643

6.4430

5.9955

Your assignment must follow these formatting requirements:

· Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides. Check with your professor for any additional instructions.

· Include a cover page containing the tile of the assignment, the student’s name, the professor’s name, the course title, and the date. The cover page is not included in the required assignment page length.

The specific course learning outcomes associated with this assignment are:

· Apply finance formulas and logarithms to amortize loans and calculate interest.

· Use technology and information resources to research issues in algebra.

· Write clearly and concisely about algebra using proper writing mechanics.

Grading for this assignment will be based on answer quality, logic/organization of the paper, and language and writing skills, using the following rubric.

Points: 15

Assignment 1: Financial Project

Criteria

Unacceptable
Below 60% F

Meets Minimum Expectations
60-69% D

Fair
70-79% C

Proficient
80-89% B

Exemplary
90-100% A

1. Explain how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.
Weight: 20%

Did not submit or incompletely explained how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.

Insufficiently explained how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.

Partially explained how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.

Satisfactorily explained how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.

Thoroughly explained how much additional money you would need to add to your monthly payment to pay off your loan in 20 years instead of 25.

2. Explain whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.
Weight: 20%

Did not submit or incompletely explained whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.

Insufficiently explained whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.

Partially explained whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.

Satisfactorily explained whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.

Thoroughly explained whether or not it would be reasonable to do this is if you currently meet your monthly expenses with less than $100 left over.

3. Identify the highest interest rate you could refinance at in order to do this and determine the interest rate that would require a monthly total payment that is less than your current total payment.
Weight: 25%

Did not submit or incompletely identified the highest interest rate you could refinance at in order to do this and did not or incompletley determined the interest rate that would require a monthly total payment that is less than your current total payment.

Insufficiently identified the highest interest rate you could refinance at in order to do this and insufficiently determined the interest rate that would require a monthly total payment that is less than your current total payment.

Partially identified the highest interest rate you could refinance at in order to do this and partially determined the interest rate that would require a monthly total payment that is less than your current total payment.

Satisfactorily identified the highest interest rate you could refinance at in order to do this and satisfactorily determined the interest rate that would require a monthly total payment that is less than your current total payment.

Thoroughly identified the highest interest rate you could refinance at in order to do this and thoroughly determined the interest rate that would require a monthly total payment that is less than your current total payment.

4. Explain whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates.
Weight: 25%

Did not submit or incompletely explained whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates.

Insufficiently explained whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates.

Partially explained whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates.

Satisfactorily explained whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates.

Thoroughly explained whether it is more or less reasonable to consider refinancing your loan. In order to answer this, you need to look at different interest rates.

5. Clarity, writing mechanics, and formatting requirements
Weight: 10%

More than 8 errors present

7-8 errors present

5-6 errors present

3-4 errors present

0-2 errors present

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