Imagine Bill and Jane are considering refinancing their house. The original loan was a 25-year mortgage (monthly payments), with a $625,000 loan, at a 5.75% interest rate. Seven years into the loan they are considering a new loan, which will be for 25 additional years (i.e., a new 25 year loan beginning when they refinance), at an interest rate of 4.25%. They plan to stay in the home for 3 more years, before selling the house for an estimated $800,000. The up-front fees and costs associated with the new loan would be $8,250. They believe they can invest funds in other investments at a rate of 12.50%.

Should they refinance? Why or why not? Please explain your answer in detail.