Smith Development Co. contracted a 30-year FRMloanwith monthly amortization of $1.5 million at an interest rate of
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Question:
Smith Development Co. contracted a 30-year FRMloanwith monthly amortization of $1.5 million at an interest rate of 13% 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 an interest rate of 12% for an FRM amortized over 25 years. However, he also estimated the total refinancing cost to be $50,000. If Smith Development Co. holds the mortgage debt for 25 more years, would you recommend they refinance? What if it holds for three years?
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