Question
6. Five years ago you borrowed $100,000 to finance the purchase of a $120,000 house. Theinterest rate on the old mortgage is 10%. Payment terms
6. Five years ago you borrowed $100,000 to finance the purchase of a $120,000 house. Theinterest rate on the old mortgage is 10%. Payment terms are being made monthly toamortize the loan over 30 years. You have found another lender who will refinance thecurrent outstanding loan balance at 8% with monthly payments for 30 years. There are noprepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 8%. a. What is the payment on the old loan?b. What is the current loan balance on the old loan (five years after origination)?c. What should be the monthly payment on the new loan? d. Should you refinance today if the refinancing costs are $4,798.00?
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