Finance Project

Financial Project

Jessica Bakken

MAT-104

Professor Lotlamoreng Mosiane

August 7, 2011

Paying Off a Mortgage Early

In this situation, you have been paying on the loan for the last five years and now want to try and pay it off five years early by making larger payments. After calculating the new monthly payment, it was found that the principle and interest payment would be $840.99. This is $89.09 more than the current payment. You would have a total monthly payment of $1,073.77. This seems like a very obtainable goal. Even though you currently meet expenses with no money left over, it would be fairly easy to make an extra $89.09 a month. It is hard to say how this would be obtained because there are so many different situations for work. If you have a salary based paying job, you would probably need to get a part time job to come up with this extra money. On the other hand, if you worked at an hourly paying job, you could try to work a few extra hours a week. If you were unable to work more hours or work overtime, you would have to get a part time job like a person paid on a salary.

The Option of Refinancing the Loan

Refinancing the loan would cost a couple thousand dollars upfront to cover the closing costs and the payments would be based on a 30 year loan. After researching current interest rates, if you refinanced the loan with an interest rate of 3.75%, then the monthly payments would be $32.97 cheaper. In the next 20 years you would save $23,732 in interest by paying off the loan early, but by refinancing it you would save $50,600. I found the latter number by using a refinancing calculator online. If you could come up with the few thousand dollars in order to refinance the loan, then it would be worth it in the end. As long as that is possible it would be more reasonable than just paying off the current loan early. However, in this situation when you are living with no extra money each month, I think it would be easier to just try...