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by gomers on March 24th, 2004

gomers

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Should I refinance from my 7% loan to an interest-only 3.5% loan if I plan on selling in a couple of years?

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Answers. 1 helpful answer below.

  • by babybird719 on December 21st, 2005

    babybird719

    Whether it would be beneficial to refinance really depends on how often interest is compounded. The more the interest is compounded, the more you pay in interest. For instance, if you get a 5 year loan for $10,000 at 7% interest compounded monthly, and made no payments for the whole 5 years, you would pay $4176.25 in interest. However, it you took the same loan for the same period at the same rate but it was only compounded twice a year, you would pay $4105.98 in interest. So whether it would be to your advantage to refinance the loan, depends on that. By the way, the equation used to find componding interest amounts is A=P(1+ r/m)^tm (the ^ symbol indicates the tm is an exponent).P= the initial investment, r= the interest rate, m= amount of times compounded per year, t = numbers of years, and A= the inital investment plus the interest

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