You are trying to decide whether to refinance your property loan. Four years ago you took out a 30 year fixed rate, fully amortizing mortgage at an interest rate of 4%. The loan was a 95% LTV loan on a house with a price of $400,000. You have no monthly PMI payments on this loan because the PMI was prepaid at closing. You can refinance this loan today with a 30 year mortgage at a rate of 2.5% with closing costs of $8331. There are no prepayment penalties on either loan. If the loan is refinanced, the borrower will be able to skip the first months payment on the new mortgage. Should the loan be refinanced today if you anticipate staying in the house for 3 more years, assuming that any funds spent to refinance the mortgage would otherwise go toward paying down principal on the existing loan? Multiple Choice No, the IRR of retinancing is -22% so the loan should not be refinanced. No, three years is not long enough to make refinancing worthwhile Yes, the NPV of refinancing is $7450, so the loan should be refinanced. O No, the IRR of refinancing is -22% so the loan should not be refinanced. No, three years is not long enough to make refinancing worthwhile. Yes, the NPV of refinancing is + $7450, so the loan should be refinanced. No, the NPV of refinancing is -3874 so the loan should not be refinanced. You are trying to decide whether to refinance your property loan. Four years ago you took out a 30 year fixed rate, fully amortizing mortgage at an interest rate of 4%. The loan was a 95% LTV loan on a house with a price of $400,000. You have no monthly PMI payments on this loan because the PMI was prepaid at closing. You can refinance this loan today with a 30 year mortgage at a rate of 2.5% with closing costs of $8331. There are no prepayment penalties on either loan. If the loan is refinanced, the borrower will be able to skip the first months payment on the new mortgage. Should the loan be refinanced today if you anticipate staying in the house for 3 more years, assuming that any funds spent to refinance the mortgage would otherwise go toward paying down principal on the existing loan? Multiple Choice No, the IRR of retinancing is -22% so the loan should not be refinanced. No, three years is not long enough to make refinancing worthwhile Yes, the NPV of refinancing is $7450, so the loan should be refinanced. O No, the IRR of refinancing is -22% so the loan should not be refinanced. No, three years is not long enough to make refinancing worthwhile. Yes, the NPV of refinancing is + $7450, so the loan should be refinanced. No, the NPV of refinancing is -3874 so the loan should not be refinanced.
