Hazel has $100,000 in savings that she plans to use as a down payment on a house that costs $650,000. She selects an closed, fixed rate mortgage with a 3-year term, a 20 year amortization period and an interest rate of 4.5% (APR). In addition, she will make monthly payments.

Assume that, after one year of payments, interest rates drop to 3.0% APR. Should she break the mortgage and refinance at the new rate? Please show all relevant calculations and explain any factors that might influence the decision. Do not forget to state any assumptions

Answer rating: 100% (QA)

To determine whether Hazel should break her mortgage and refinance at the new rate we need to compare the total costs of continuing with the existing mortgage versus the total costs of refinancing Giv... View the full answer