Assume that you chose an 80% LTV mortgage of $450,000 with an interest rate of 8% over 30 years. However, after 10 years you are thinking about refinancing for $5,000. You will only be in the home for another 5 years. The new loan would be an ARM. Interest rates on 20-year ARMS are currently 6%. Interest rates are expected to increase to 7% in years 2 and 3 and then to 8% in years 4 and 5. - Find the return on your $5,000 refinancing cost. Should you refinance? CF0 = Difference in downpayments

C01= Difference in loan payments yrs, F01=12

C02= , F02= 12

CO3= ,

.

C0= 5 , F05= 11

C06= (difference in pmt years) - (difference outstanding balances), F06=1

IRR= ?