Michael Smith was in trouble: He was unemployed and living on his monthly disability pay of $1,200. His credit card debts of $19,000 were threatening to overwhelm this puny income. Every month in which he delayed paying the credit card debt cost him 1.5% on the remaining balance. His only asset was his house, on which he had a $67,000 mortgage.
Then Michael got a phone call from Uranus Financial Corporation: The company offered to refinance Michael’s mortgage. The Uranus representative explained to Michael that, with the rise in real-estate values, Michael’s house could now be remortgaged for $90,000. This amount would allow Michael to repay his credit card debts and even leave him with some money. Here are some additional facts:
• The new mortgage would be for 25 years and would have an annual interest rate of 9.23%. The mortgage would be repayable in equal monthly payments over this term, at a monthly interest rate of 9.23% / 12 = 0.76917%. The fees on the mortgage are $8,000.
• There are no penalties involved in repaying the $67,000 existing mortgage.
Answer the following questions:
a. What will Michael’s monthly payments be on the new mortgage?
b. After repaying his credit card debts, how much money will Michael have left?
c. What is the effective annual interest rate (EAIR) on the Uranus mortgage?
Show A-C, in excel computations/formulas to get the correct anwsers listed in parenthesis.