Several years ago Bill Smith borrowed 125000 to buy his hous

Several years ago, Bill Smith borrowed $125,000 to buy his house. He has a 15 year, monthly payment mortgage with an interest rate of 8.75 percent per annum. Bill is thinking about refinancing his house so he would like to know the payoff on his current loan. Assuming that he just made payment number 68, compute the payoff on Bill\'s loan. (Round your answer to 2 decimal places; record your answer without commas and without a dollar sign). Your Answer: Answer

Solution

Calculation of monthly payment:

Amount borrowed = $125,000
Annual Interest Rate = 8.75%
Monthly Interest Rate = 0.7292%
Period of Loan = 15 years or 180 months

Monthly Payment * PVIFA(0.7292%, 180) = $125,000
Monthly Payment * (1 - (1/1.007292)^180) / 0.007292 = $125,000
Monthly Payment * 100.0528 = $125,000
Monthly Payment = $1,249.34

Calculation of Pay-off:

Monthly Payment = $1,249.34
Remaining Period of Loan = 112
Monthly Interest Rate = 0.7292%

Outstanding Loan Balance = $1,249.34 * PVIFA(0.7292%, 112)
Outstanding Loan Balance = $1,249.34 * (1 - (1/1.007292)^112) / 0.007292
Outstanding Loan Balance = $1,294.34 * 76.3581
Outstanding Loan Balance = $98,833.34

So, Bill’s current payoff is $98,833.34