What is your savings due solely to the drop in interest rate

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Question - Five years ago, you bought a house using a $500,000 30-year fixed rate loan with an interest rate of 4.5%. Your monthly payments for principal and interest are: $2,533.43. Interest rates have fallen to 3.5%, and you are considering refinancing your loan (taking out a new loan and paying off your original loan). You still have $455,790 in outstanding principal that you owe on your original loan. If you took out a new 30 year fixed rate loan with an annual interest rate of 3.5%, your new monthly payment would be $2,046.70. This is a difference in your monthly payment of $486.73 per month. Some of that savings, however, is due to starting your 30 year clock over and essentially extending the length of time you'll be making payments to the bank. What is your savings due solely to the drop in interest rate?

A. 251.64

B. 486.73

C. 312.36

D. 633.35

Reference no: EM133168167

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