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How much will the organization save each month

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Question - 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.

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.)

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.)

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

Reference no: EM133020241

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