How much will the organization save each month

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An organization plans to take out a $375,000, 30-year mortgage with a 4.50% annual interest rate. The organization finds out it has the option of paying $19,800 in upfront fees to reduce the mortgage's annual interest rate to 3.85%. The organization can earn an annual return of 2.25% on any money it saves.

Problem a) Ignoring the upfront fees for now, how much will the organization save each month by choosing the option with the lower annual interest rate? (Hint: Mortgage payments are monthly cash outflows.)

Problem b) The organization decides to pay the upfront fees in order to have a lower annual interest rate. How many years will it take the organization to recover the upfront fees? (Hint: Treat the savings as a monthly cash inflow.)

Problem c) How much money will the organization save in total (in today's dollars) over the next 30 years?

Reference no: EM132913894

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