Question
Five years ago you borrowed $200,000 to finance the purchase of a $240,000 home. The interest rate on the old mortgage loan is 6 percent.
Five years ago you borrowed $200,000 to finance the purchase of a $240,000 home. The interest rate on the old mortgage loan is 6 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 4 percent with monthly payments for 30 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $6,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 4 percent.
Required:
- What is the payment on the old loan?
- What is the current loan balance on the old loan (five years after origination)?
- What would be the monthly payment on the new loan?
- Should you refinance today if the new loan is expected to be outstanding for five years?
Note: For all requirements, Do not round intermediate calculations and round your final answer to 2 decimal places.
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