Question: Scenario 2 An investor obtained a fully amortizing mortgage 5 years ago for $95,000 at 11% for 30 years. Mortgage rates have dropped, so that

Scenario 2 An investor obtained a fully amortizing mortgage 5 years ago for $95,000 at 11% for 30 years. Mortgage rates have dropped, so that a similar 25 -year loan can be obtained at 10%. There is no prepayment penalty on the original loan but 3 points and a $2,000 loan fee are charged on the new loan at origination. Based on Scenario 2 above, should she refinance the mortgage or invest the refi costs in a bond fund? Assume she can earn 14.8% by investing the refinancing costs in a bond fund of similar risk to that of her mortgage. (Also assume she plans to hold either investment for 25 years) Invest in the bond fund She should be indifferent between the two options Refinance the mortgage

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