Sasha got a 30 year fully amortizing FRM for $500,000 at 8%. with constant monthly payments. After 3 years of payments rates fall and he can get a 27-year FRM at 5%, but he must pay T points and $20000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Sasha, he pays a fee now but saves money in the future in the form of lower payments. 

What is the IRR of the refinancing option for Sasha assuming he stays in the house for another 5 years (meaning he stays a total of8 years)?

Answer rating: 100% (QA)

SOLUTION The IRR of the refinancing option for Sasha is 804 We will first calculate the present value of the future payments under the new loan terms ... View the full answer