A new office building was constructed five years ago by a consulting engineering firm. At that time the firm obtains a bank loan for $100,000 with a 12% annual interest rate, compounded quarterly. The terms of the loan call for equal quarterly payments to repay the loan in 10 years. The loan also allows for its prepayment at any-time without penalty.
Due to internal changes in the firm, it is now proposed to refinance the loan through an insurance company. The new loan would be for 20 years term with an interest rate of 8% per year, compound quarterly. The new equal quarterly payment would repayable loan in 20 years period. The insurance company requires the payment of a 5% loan initiation charge (often describes as “five point loan fee”) which would be added to the new loan.
What is balance due to the original mortgage if 20 payments have been made in the last five years?
What is the difference between the equal quarterly payment on this present bank loan and the proposed insurance company loan?