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Problem:

Urban Site Engineering constructed a small office building for their firm 5 years ago. They financed it with a bank loan for $450,000 over 15 years at 6% interest with quarterly payments and compounding. The loan can be repaid at any time without penalty. The loan can be refinanced through an insurance firm for 4% over 20 years-still with quarterly com-pounding and payments. The new loan has a 5% loan initiation fee, which will be added to the new loan.

Requirement:

Question 1: What is the balance due on the original mortgage (20 payments have been made in last 5 years)?

Question 2: How much will Urban Site's payments drop with the new loan?

Question 3: How much longer will the proposed loan run?

Note: Provide support for rationale.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91166867

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