Short answer:

A borrower obtained a fully amortizing mortgage 6 years ago for $98,000 at 11 percent for 30 years. Now a fully amortizing 24-year loan can be obtained at 9.5 percent. There is no prepayment penalty and the closing cost inclcudes four points charged on the new loan and other closing costs of $2,500. All payments are monthly.

a. Should the borrower refinance if he plans to own the property for the remaining loan term and has an alternative investment with the return rate of 20%? Assume that the borrower only has the money amount equal to the closing costs.

b. Should the borrower refinance if he plans to live in the property for just another 8 years? Assume that there are no alternative investments for the borrower. This question is irrelevent with part a and please answer this question without considering the information provided in part a.