Suppose that five years ago you borrowed $300,000 on a 30-year fixed-rate mortgage with an annual interest
Question:
Suppose that five years ago you borrowed $300,000 on a 30-year fixed-rate mortgage with an annual interest rate of 10% with monthly payments and compounding. The interest rate on 30-year fixed-rate mortgages has dropped to 8.5% and you're wondering if you should refinance the loan. Refinancing costs are expected to be 5% of the new loan amount.
a. What is the net present value of the refinance if you make all the scheduled payments on the new loan?
b. What is the net present value of the refinance if you pay off the new loan at the end of the third year?
C. How many payments do you need to make on the new loan for the refinance to have a positive net present value?
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin