1. Years ago you purchased a home for $675,000. You

1. Years ago you purchased a home for $675,000. You financed the purchase with the following loan: Fully amortized 30 years 6% fixed rate loan at an LTV of 95%. Since then mortgage rates have decreased and you are considering refinancing your mortgage. You believe you can secure a 25 years fully amortized mortgage at a rate of 5.25%. However, you will have to pay 2 points in fees upfront. 

a. What is your return on investment if you remain in the home for the following 25 years? 

b. What is your return on investment if you remain in the home for the following 10 years?


2. A 30-year fully amortizing mortgage loan was made 10 years ago for $75,000 at 6 percent interest. The borrower would like to prepay the mortgage balance by $10,000.

a. Assuming he can reduce his monthly mortgage payments, what is the new mortgage payment? 

b. Assuming the loan maturity is shortened and using the original monthly payments, what is the new loan maturity?