Reference no: EM132761615
Question: 1. 7 years ago a fixed rate mortgage for $ 100,000 was issued which would fully amortize monthly in 20 years. The contract rate was 8%. Refinancing costs $3,000. Now tha rates have fallen to 6%.
• What is the monthly payment?
• What is the loan balance?
• What is the Break-even rate for refinancing?
• Is refinancing a good idea?
2. Independent of your answer in 1d., let's say, you opt for refinancing. If refinancing means a full cash-out, how much will it be? What is the loan value now given the new rate?
PV based on new rate:
Re-financed PV:
Cash Out:
3. Suppose refinancing means maximum reduction in the payment. What is the new payment? What is the percent reduction?
Suppose refinancing means maximum reduction in the number of payment.
• How many payments are left?
• How many payments were reduced?
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