Considering the following information, what is the NPV if the borrower refinances the loan?

Expected holding period: 3 years

Current loan balance: $100,000

Current loan interest: 7%

Current loan mortgage payment: $898.33

Remaining term on current mortgage: 15 years

New loan interest: 5.5%

New loan mortgage payment: $817.08

New loan term: 15 years

Cost of refinancing: $5,000

Assume that the opportunity cost is the interest rate on the new loan (5.5%).

Suppose that you are in the process of deciding whether or not to refinance your fixed rate mortgage at a lower rate and you are interested in using the payback period rule of thumb to help you in your decision. Your lender has informed you that the cost of refinancing would be $4,300. If your original monthly mortgage payment was $1,250 and your new monthly mortgage payment would be $1,150 after refinancing, determine the payback period.

Suppose you are thinking about purchasing a small office building for $1,500,000. The 30 year fixed rate mortgage that you have arranged covers 80% of the purchase price and has an interest rate of 8%. Assume you were to default and go into foreclosure in year 10 of this loan. If the lender was able to sell this property for $700,000, how much does the lender stand to lose in the absence of PMI?