Financial Project - Research Paper Example

Financial Project Additional money necessary to repay the loan in 20 years and not 25 years Monthly repayments, C are For a new repayment plan starting with a principle of $112,247.47, a monthly interest rate of 5.75%, and a repayment period of 20 years, P = $112,247.47,r = (5.75/12)/100 = 0.004792, N = 12*20 = 240 MonthsCurrent monthly repayment (for a 30-year period at 4.75% interest rate) = $706.12 (Bankrate.com, 2012) Substituting from the formula = $788.07Monthly payments for 20-year period are $788.

07ORFrom the tables, 20 years at a rate of 5.75% will cost 7.0208 for $1,000 worth of financingTherefore, for 112,247.47 worth, the monthly amount will be 7.0208*(112,247.47/1,000) = 788.07Additional amount is 788.07 - 706.12 = 81.95Therefore, the additional payments will amount to $81.952. Whether it would be reasonable to do this with less than $100 left over No, it would not be reasonable. The maximum possible available after the payment of the extra loan amount will be 100 - 81.95=18.05Making additional payments to the mortgage with so little left over would be highly imprudent.

In case monthly expenses were to rise over time, as they most certainly do due to factors such as inflation or unforeseeable cash demands, the monthly mortgage repayments would fall into default, eventually leading to the loss of the house or mortgage renegotiation resulting in higher payment amounts over time. However, the option would be viable if there are real prospects of increased income streams in the immediate future.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 pay the current balance in 20 years. Determine the interest rate that would require a monthly total payment that is less than your current total payment. In addition, refinancing costs you $2000 up-front in closing costs. Interest rate options available at 20 years areInterest of 5.50%, 6.8789, 6.8789*(112,247.47/1,000) = 772.14Interest of 5.25%, 6.7384, 6.

7384*(112,247.47/1,000) = 756.37Interest of 5.00%, 6.5996, 6.5996*(112,247.47/1,000) = 740.79Interest of 4.75%, 6.4622, 6.4622*(112,247.47/1,000) = 725.37Interest of 4.50%, 6.3265, 6.3265*(112,247.47/1,000) = 710.13Interest of 4.25%, 6.1924, 6.1924*(112,247.47/1,000) = 695.08Interest of 4.00%, 6.0598, 6.0598*(112,247.47/1,000) = 680.10Interest of 3.75%, 5.9289, 5.9289*(112,247.47/1,000) = 665.50Therefore, the highest interest rate that would result in less than the current loan repayments would be 4.

50%, where the monthly total will amount paid towards the loan, and the principal will be $695.08, which is less than the current $706.12. However, the closing costs of $2,000 upfront may weigh on the ability to get into a refinancing agreement deal.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.Monthly payments at 30-year interest will be Interest of 5.50, 5.6779, 5.6779*(112,247.47/1,000) = 637.33Interest of 5.25, 5.5220, 5.5220*(112,247.47/1,000) = 619.83Interest of 5.00, 5.3682, 5.3682*(112,247.47/1,000) = 602.57Interest of 4.75, 5.2165, 5.2165*(112,247.47/1,000) = 585.54Interest of 4.50, 5.0669, 5.0669*(112,247.47/1,000) = 568.75Interest of 4.25, 4.9194, 4.9194*(112,247.47/1,000) = 552.19Interest of 4.00, 4.7742, 4.

7742*(112,247.47/1,000) = 535.89Interest of 3.75, 4.6312, 4.6312*(112,247.47/1,000) = 519.84A refinancing plan for a 30-year period will reduce the monthly payment by at least 706.12-637.33 = 68.79. This is excluding the closing costs required in the refinancing agreement with the bank.Refinancing this loan has two obvious downsides: the repayment period will increase, and extra expenses will be incurred in terms of closing costs. However, the refinancing will lower the monthly repayment amounts by at least $68.79. For a person in a poor credit position due to the demands of the current loan repayments, the refinancing would be a welcome relief to boost this credit situation.

ReferencesBankrate.com. (2012). Mortgage Payment Calculator. Bankrate.com. Retrieved on February 7, 2012 from http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx