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49 2. You borrowed $1.4 million 6 years ago using a 30-year mortgage at 5.5% interest. You paid 2 points at 50 origination and you
49 2. You borrowed $1.4 million 6 years ago using a 30-year mortgage at 5.5% interest. You paid 2 points at 50 origination and you agreed to a prepayment penalty of $100,000. Today's market interest rate on similar, 24-year 51 mortgages is 4.5%. The cost of refinancing the balance of the original loan for the remaining 24 years is 2 points. 52 The points and prepayment penalty must be paid in cash (not financed) at closing. 53 54 What is the NPV of the refinancing decision at an opportunity cost of 4.5% if you expect to hold the new loan to maturity? 55 Original Loan Amount NPV @ 4.5% 56 Years 57 Periods Per Year 58 Interest Rate 59 Points at Origination 60 Refinancing Month 61 Monthly Payment 62 Balance at Refinancing 64 New Loan Amount 65 Years 66 Periods Per Year 67 Interest Rate 68 Points at Origination 69 Prepayment Penalty 70 Prepayment Month 71 Monthly Payment 72 Opportunity Cost 49 2. You borrowed $1.4 million 6 years ago using a 30-year mortgage at 5.5% interest. You paid 2 points at 50 origination and you agreed to a prepayment penalty of $100,000. Today's market interest rate on similar, 24-year 51 mortgages is 4.5%. The cost of refinancing the balance of the original loan for the remaining 24 years is 2 points. 52 The points and prepayment penalty must be paid in cash (not financed) at closing. 53 54 What is the NPV of the refinancing decision at an opportunity cost of 4.5% if you expect to hold the new loan to maturity? 55 Original Loan Amount NPV @ 4.5% 56 Years 57 Periods Per Year 58 Interest Rate 59 Points at Origination 60 Refinancing Month 61 Monthly Payment 62 Balance at Refinancing 64 New Loan Amount 65 Years 66 Periods Per Year 67 Interest Rate 68 Points at Origination 69 Prepayment Penalty 70 Prepayment Month 71 Monthly Payment 72 Opportunity Cost
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