Fifteen years ago, Meals for the Homeless bought a new building for $ 600,000. They borrowed $ 500,000 on a 30-year mortgage with a 6 percent fixed rate and monthly payments. The current outstanding balance on the mortgage is $ 355,000. Today, they can get a 15-year fixed-rate mortgage with an interest rate of 4.32 percent. The mortgage would require monthly payments in arrears. It will cost Meals $ 20,000 to do the refinancing. Should Meals refinance the mortgage under those terms?
Since you know Meals could use the $ 20,000 it will cost to refinance the mortgage to pay off some of the principal on its current mortgage, you have decided to use the interest rate on the existing mortgage as the discount rate for your analysis. Be sure to include the cost of refinancing in the amount you intend to borrow.
A. Solve using a spreadsheet program such as Excel.
B. Solve using a financial calculator.

  • CreatedDecember 19, 2014
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