4) Mr Wickham borrowed $436,900 from the bank to buy a house. The interest rate was 6.369% p.a. compounded semi-annually and the mortgage contract specified that the loan was to be paid back with equal monthly payments over 25 years with the first payment exactly one month after taking out the loan. Furthermore these terms were locked for five years.

Mr Wickham has just made the 36th payment. Interest rates in the marketplace are now 5.951% p.a. compounded semi-annually. Mr Wickham is thinking of refinancing the loan. However, if he breaks the current contract he will be obliged to pay a penalty equal to the interest payments of the next three months. Should Mr Wickham refinance the loan?