Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Five years ago you borrowed $120,000 to finance the purchase of a $150,000 home. The interest rate on the old mortgage loan is 8 percent.

Five years ago you borrowed $120,000 to finance the purchase of a $150,000 home. The interest rate on the old mortgage loan is 8 percent. Payments are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 5.5 percent with monthly payments for 30 years. The new lender will charge three discount points on the loan. Other refinancing costs will equal $4,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 7 percent.

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 would be the monthly payment on the new loan?

d. Should you refinance today if the new loan is expected to be outstanding for five years? Show calculations.

Please show formulas

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Principles Of Managerial Finance

Authors: Lawrence J. Gitman, Chad J. Zutter

13th Edition

9780132738729, 136119468, 132738724, 978-0136119463

More Books

Students also viewed these Finance questions