Two years ago, you purchase a house of $100,000. You borrow a mortgage with 80% of LTV (loan to value ratio). The interest rate on the mortgage is 6%. Payment terms are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance plus all the costs associated with the new loan at 4.5% with monthly payments for 30 years. Suppose that the new lender will charge three discount points on the new loan and other refinancing costs will equal $3,000.
1. What is the new loan amount if you choose to refinance?
2. What is your monthly payment for the new loan?
3. What is the effective cost of your new loan and do you refinance if you hold the loan for 30 years

Answer rating: 100% (QA)

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