5. Ten years ago, a couple purchased a house, financing $260,000 of the purchase with an 6%...
Question:
5. Ten years ago, a couple purchased a house, financing $260,000 of the purchase with an 6% mortgage (monthly compounded) over 30 years. Interest rates in the market are 3% compounded semi-annually. Today, on the 10th anniversary date of their mortgage (i.e., after they made mortgage payments for 10 years), mortgage rates had fallen to 4%. If they refinance their home at this time with a new 30 year loan, they will incur prepayment penalties and closing costs which together are equal to 5% on the new mortgage. Assume that the couple can finance both the new mortgage and the prepayment penalties and closing costs at the 4% rate.
Assume the couple makes monthly payments. Should they refinance their home?
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill