Financial Project - Assignment Example

Financial Project Financial Project Introduction A mortgage is taken for purpose of owning property (Roberts and Ralph 2009). A down payment is usually required as a start to this property ownership process. A set percentage is usually required as the initial payment; this percentage varies from one institution to another (Roberts and Ralph 2009). People take loans for payment because a majority of the population does not have enough money for one-off payments during purchase. This loan is repaid over a period of years with most of them being five years and above.

DiscussionThis assignment refers to a house valued at $ 151,000 that requires a down payment of $30,000. The extra amount of $ 121,000 was to be taken in form of a loan for repayment in monthly installments. In the event that the loan is to be repaid for 20 years a total of $ 849.52 per month is to be remitted. If the loan is to be repaid in 25 years, a total of $761.22 in form of principal and interest is to be remitted. This means an addition of $ 88.3 would be needed for this increment to result in the repayment being reduced to 20 years.

The increment of $ 88.3 means that this figure will be deducted from the extra amount in the pay slip. This will not be on advisable thing to do in the event that one meets his/her monthly expresses with less than $100 left over. A good organization in one`s financial aspects require some money left to cater for emergencies (Roberts and Ralph 2009). This would mean a surplus of $ 11.7 will be what one would be left with. This will not be good especially within a family setting.It is possible for the loan to be repaid in 20 years.

The current balance is $ 112,242.47. Refinancing means that one has decided to pay off the accrued loan balance which includes both the principle and interest (Roberts and Ralph 2009). Paying off this loan in 20 years would mean a change in the interest rate or monthly installments. At an interest rate of 5.75%, the total interest to be paid at the end of 20 years would be $ 82,885.05. This means the total amount to be refinanced at the end of 20 years would be 203,885.05. At an interest rate of 4.

05%, the total amount in interest to be repaid amounts to $ 55,742.73. Refinancing would require an upfront payment of $ 2,000; this figure would be added on both of these final amounts. This translates to $ 205,888.05 for 5.75% interest rate and $ 178,742.73 for 4.05%. Credit rating is assumed to be the credit worthiness of an individual (Roberts and Ralph 2009). There are specific agencies that are charged with the mandate to judge whether an individual is credit worthy or not. This decision is not usually based on mathematical formulas but these firms rely on judgment and experience (Roberts and Ralph, 2009).

With a poor credit rating an individual is judged as being at a high risk of defaulting on a loan (Andrews, 2009). The above individual who took the loan was judged as having a good credit rating. He/she has high chances of being allowed to refinance this loan as he/she qualifies.At an interest rate of 4.05% for 30 years, the total amount to be paid in interest would be $ 88.219.70 which translate to a total of $209,219.70. At 5.75% for thirty years the figure would amount to an interest amount of $ 133,204.

34 which would add up to a total of $ 254,204.34. Refinancing is expensive and different banks charge different extra amounts to cater for the refinancing costs (Andrews, 2009). The closing costs cater for the extra costs the bank has to incur in terminating the loan contract and to cushion itself from the interest it had anticipated if the loan had run for its full term (Andrews, 2009).Conclusion The ability of an individual to refinance a loan taken depends on the credit worthiness of the individual (Andrew, 2009).

For one to adjust the monthly repayment so as to minimize the loan repayment also depends on the surplus income already existing before this adjustment is done (Roberts and Ralph 2009). Care should be taken to avoid one being strained financially incase these adjustments are done (Andrew, 2009).ReferencesAndrews, E.L. (2009). Busted: Life Inside the Great Mortgage Meltdown. New York: Van Nostrad Reinhold.Roberts. R.. and Ralph, R. (2009). Loan Modification for Dummies. London: Chapman and Hall.