1. Smith Development Co. contracted a 30-year FRM loan with monthly amortization of $1.7 million at an interest rate of 15.2% five years ago. John Smith, a partner, just talked to a loan officer and learned that he can refinance the current balance on the loan at interest rate of 13% for a FRM amortized over 25 years. However, he also estimated the total refinancing cost to be $70,000. If Smith Development Co. holds the mortgage debt for 25 more years, would you recommend them to refinance? What if it holds for three years?

Answer rating: 100% (QA)

To determine whether it would be advisable for Smith Development Co to refinance the mortgage in both scenarios we need to compare the costs and benef... View the full answer