Five years ago, you purchase a house of $500,000. You borrow a mortgage with 80% of LTV(loan to value ratio), monthly payments and the interest rate of 5% for 30 years. You have found a new lender who will refinance the current outstanding loan balance plus all the costs associated with the new loan at 3.5% with monthly payments for 30 years. Suppose that the new lender will charge 3.5 discount points on the new loan and other refinancing costs will equal $2,000.

1. What is your monthly payment for the current loan?

2. What is the current outstanding loan balance?

3. What is the new loan amount if you choose to refinance?

4. What is your monthly payment for the new loan?

5. What is the effective cost of your new loan if you hold the loan for 30 years? Do you refinance?

6. If you want to refinance today, at least how many years should you stay in the house(do not prepay)? Why?