Refinancing Home Mortgage
Here is the question. How can I fix this?
John wants to take a mortgage of 20 years, $ 400,000 Money Bank and repay it with monthly payments. The current rate mortgage in 20 years is 12%, compounded semi-annually. Money Bank (made semi-annually) the mortgage to 11% reduction in the first 10 years if John agrees to join the Diamond Club Money Bank for 10 years. A member of the Diamond Club, John must pay annual fee at the beginning of each year. John’s opportunity cost of capital is 8% per year. Determine the maximum annual contribution that John, a member of the Diamond Club to pay.
This is a 2nd Years University Question for introduction into the finances.
I know the monthly rates of 12% compounded semi-annually and 11%, compounded semi-annually amount to 0.97588% and 0.89634%.
I also know that the first option (no club), monthly payments are $ 4,323.90.
I need the second part of the question to help. How do I find the mortgage payments with two different rates, along the current value of this thing, and finally the Diamond Club membership?
1. Calculate the annual mortgage payments for a mortgage of 20 years from 400,000 to 12%, twice a year. The PMT function in Excel can do it quickly. Can not find the monthly payments because the loan is put together every six months. To find the monthly payment, divide that number by 12, but you do not need (see Step 3)
2. Calculate the annual mortgage payments for a mortgage of 20 years from 400,000 to 11%, twice a year.
3. Multiply Step 1 answer of 10, and Step 2 Answer 10 Step 2 Drag the answer from step 1 to know the answer to benefit more than 10 years. This is the future value of all cash flows are saved from this transaction.
4. Bring cash flows using present value of the required rate of return (opportunity cost of capital) of 8%. The formula is PV = FV / (1 + i) ^ 10 PV-number to obtain the maximum amount of money you should spend, if you now an annual return of 8% for a future value of what you see in Step 3 to require. Where the annual fee is higher than that, it’s not worth it, John – the annual fee is lower than it’s worth.
This is about mortgage information questions.
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