Objective Help a friend decide whether to refinance their home mortgage

Project Assumptions

4 years ago, Bill and Mary Jones purchased a house in Smyrna, TN

o 3 bedrooms o 2,500 sq ft

o 2 car garage

They paid $265,500 with a 80% LTV loan at 7.00% (30 year)

Fees for the appraisal, legal, etc. were $2,000

The bank charged a 1% origination fee out of pocket

Rates have dropped significantly and their old bank is now offering a loan at 5%

The Jones have been approved for a loan to payoff their current balance only but no cash out

The bank still expects to get a 1% origination fee plus one discount point for the new loan

Costs and fees have risen by 10% and all must be paid up front the bank is not willing to roll them into the new loan

Bill thinks his job will make him move to Alabama in 3 years

Their accountant has advised them to use a discount rate of 10%

use excel to solve which loan is more profitable for them.