You took out a $200,000 loan for 30 years at 12% per year six years ago. Now, at year 6, the interest rate that most banks are offering for your type of mortgage is 10% per year. Your lender has a prepayment penalty of 3% of the outstanding principal amount and closing costs of 2% of the loan amount. Should you refinance?

1. Calculate outstanding principal balance

2. Calculate new mortgage payment (with new interest rate and new term)

3. Calculate monthly savings (difference between new and old payments)

4. Calculate total savings:

A. Ignoring TVM (without discounting): multiply monthly savings by the number of months

B. Recognizing TVM (with discounting): discount the savings to find net present value

5. Calculate Net Benefits = Total savings Cost of refinancing

Please show your work clearly.