Annual payment of principal and interest

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Mr. H issues a 20 year mortgage of $275,000 at an annual interest rate of 4.4% to buy a house.The mortgage payments are made annually.

1. What is Mr. H's annual payment of principal and interest?

$20,958

$22,425

$18,653

$24,102

2. How much interest does Mr. H pay in the second year of the mortgage?

$11,710

$13,467

$12,530

$10,422

3. Suppose that immediately after making the second annual payment, Mr. H has the opportunity to refinance the remaining mortgage balance at an annual rate of 3.4% for the remaining period of 18 years. What is the largest lump sum refinancing payment that he would be willing to make today to secure the lower cost financing? Assume that he continues to make annual payments on the new mortgage. 

$19,440

$25,119

$21,843

$23,372

4. Using the information from the refinancing question and assuming that Mr. H refinanced his mortgage at the lower rate after making two annual payments, how much is his remaining mortgage balance after making 8 of the lower annual payments in addition to the first two made before refinancing?

$185,673

$161,454

$143,694

$172,756

Reference no: EM132049225

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