Borrower incurred a mortgage

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Five years ago, a borrower incurred a mortgage for $200,000 at 10 percent for 30 years, monthly payments. The current market rate is 8.5 percent for 25-year mortgages. The existing mortgage has a prepayment penalty of 2 percent of the payoff balance and the new lender will charge 3 percent financing cost on a new loan. The borrower’s opportunity investment rate is 9 percent. If the borrower intends to hold the mortgage financing for 25 more years, should she refinance at the present time? (You must show your work)

Reference no: EM131882166

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