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12. Refinancing a mortgage. Use Worksheet 5.4. Lily Nguyen purchased a condominium four years ago for $200,000, paying $1,250 per month on her $162,000, 8 percent, 25-year mortgage. The current loan balance is $152,401. Recently, interest rates dropped sharply, causing Lily to consider refinancing her condo at the prevailing rate of 6 percent. She expects to remain in the condo for at least four more years and has found a lender that will make a 6 percent, 21-year, $152,401 loan, requiring monthly payments of $1,065. Although there is no prepayment penalty on her current mortgage, Lily will have to pay $1,500 in closing costs on the new mortgage. She is in the 15 percent tax bracket. Based on this information, use the mortgage refinancing analysis form in Worksheet 5.4 to determine whether Lily should refinance her mortgage under the specified terms. Refinancing a mortgage. Use Worksheet 5.4 MORTGAGE REFINANCING ANALYSIS Name: Lily Nguyen Item Description 1 \ current monthly payment (Terms: $162,000; 8%; 25 yrs.) Date: Amount New monthly payment (Terms: $152,401; 6%; 21 yrs.) 3 Monthly savings, pretax (Item 1 -Item 2) Tax on monthly savings [Item 3 x tax rate (15%) 5 Monthly savings, after-tax (Item 3 -Item 4) 6 Costs to refinance: a. Prepayment penalty b. Total closing costs (after-tax) c. Total refinancing costs (Item 6a +Item 6b) months 7 Months to break even (item 6c +Item 5)