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
Then, answer these questions:
1. How much additional money would you need to add to your monthly payment to pay off your loan in 20 years instead of 25? If you currently meet your monthly expenses with less than $100 left over, would it be reasonable to do this?
2. 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. What is the highest interest rate you could refinance at in order to do this? 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.