Assessing a refinancing opportunity is a key component in determining the viability of a real estate investment. The purpose of this assignment is to demonstrate that the student understands the factors that should be taken into account in choosing a refinancing option, including financial calculations.

An investor obtained a fully amortizing mortgage four years ago for $100,000 at 12 percent for 30 years. Mortgage rates have dropped, so that a fully amortizing 25-year loan can be obtained at 10 percent. There is no prepayment penalty on the mortgage balance of the original loan, but 3 points will be charged on the new loan and other closing costs will be $2000. All payments are monthly.