You have just purchased a house and have obtained a 30 year, $200,000 mortgage with an interest rate of 10%.

Required:

A. What is your annual payment?

B. Assuming you bought the house on January 1, what is the principal balance after one year? After 10 years?

C. After four years, mortgage rates drop to 8% for 30-year fixed rate mortgages. You still have the old 10% mortgage you signed four years ago and you plan to life in the house for another five years. The total cost to refinance the mortgage is $3,000, including legal fees, closing costs and points. The rate on a five year CD is 6%. Should you refinance your mortgage or invest the $3,000 in a CD? The 6% CD rate is your opportunity cost of capital.