Layla has owned her home for 12 years and expects to live in it for 5 more years. She originally borrowed $200,000 at 5% for 30 years to buy the home. She still owes $130,000 on the loan. interest rates have fallen to 4%, and Layla is reconsidering refinancing the loan for 15 years. She would have to pay 3 points on the new loan with no prepayment on the current loan.

What is Layla's current monthly payment?

Calculate the monthly payment on the new loan.

Run the numbers worksheet, "When You should Refinance Your mortgage" on page 278. Show the numbers at each line. Use 3% for the investment return. Advise Layla on whether she should refinance.