A borrower is refinancing. Their old loan has a balance of $250,000 at 6.0%. The new loan is $250,000 at 5.0%. How much will the borrower save in monthly interest in the first month?

Correct answer: $208.33

Old monthly interest = ($250,000 x 6.0%) / 12 = $1,250.00. New monthly interest = ($250,000 x 5.0%) / 12 = $1,041.67. Savings = $1,250.00 - $1,041.67 = $208.33 per month. With the same balance, every 1% rate reduction saves approximately $83.33 per $100,000 of loan balance per month.