Question
You currently have a house payment of y1. You have been in your current house for y2 years and had an original mortgage term of
You currently have a house payment of y1. You have been in your current house for y2 years and had an original mortgage term of y3 years. While the rate on the original mortgage is y4, current interest rates have decreased to the point where you could refinance at a rate of y5 by paying one point (1%) of the mortgage balance upfront. You have decided that, if you do refinance, you would finance the new loan at y6 years, which is the original old term minus the age of the original loan.
- If you plan to be in the house for at least four more years, should you refinance?
- Suppose that you did refinance and made one extra payment at the end of each of the next y6 years that is applied fully and only to principal. Exactly how many months early would the loan be paid off?
- What concerns would you have given the above?
Y1 | $1,425.05 | Historical mortgage refinance rate |
Y2 | 9.00 | Age of current mortgage |
Y3 | 20.00 | Original term in years |
Y4 | 10.250% | Historical APR of mortgage |
Y5 | 7.50% | New mortgage refinance rate |
Y6 | 12.00 | New mortgage term is old term minus age |
Y7 | 7.25% | New rate if pay a point |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started