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Comparison of olb and market value approach

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Question: Five years ago, you took out a $120,000, 30-year mortgage at 9% interest, with no prepayment penalty. Today you can get a 25-year mortgage at 7% with 2 points in closing costs. Assuming you plan to be in your house another five years, determine the NPV of refinancing (ignoring option value considerations). Do the calculation twice, once using the traditional refinancing calculation and then again using the shortcut (or comparison of OLB and market value approach). Of course, your answer should be the same for each.

Reference no: EM131734728

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