Borrower will sell house and pay off any remaining mortgage

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Reference no: EM131882653

In what follows, assume fully amortizing, level payment mortgages, and that only scheduled payments are made (both in past and future). Ignore the effect of taxes and the value of the option to refi again, later. A borrower has had a 30 year, 8%, $500,000 mortgage for 5 years. Closing fees on this mortgage were 3% of the loan amount, and the prepayment penalty is 4% of OLB. The borrower is considering a refi into a 15 year mortgage at 7%. She will finance the payoff and all fees, and take out no additional cash. The closing fees on the new mortgage are 3% of the loan amount. The borrower will sell the house and pay off any remaining mortgage 20 years from now. What is the NPV of refinancing, and should the borrower refil?

Reference no: EM131882653

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