A borrower made a mortgage loan five years ago for $275,000 at 7.50% interest for 30 years, monthly payments. The loan balance is now $260,198 and rates for this amount are currently 6.0% for 25 years. Origination fees and closing costs are $2,000 and closing costs are not financed by the lender. What is the effective cost of refinancing? 

1. A homeowner made a mortgage loan ten years ago for $225,000 at 9.0% for 30 years. Today the rate on 20-year mortgages is 7.75%. To refinance, the borrower discovers that financing fees would be $3,200. What is the return on the investment if the borrower plans to stay in the house for the next 20 years? The borrower plans to refinance the current outstanding balance.

Answer rating: 100% (QA)

Lets calculate the effective cost of refinancing for both scenarios 1 Effective Cost of Refinancing for Scenario 1 Initial Loan Amount 275000 Original Interest Rate 750 Remaining Loan Term 25 years si... View the full answer