Interest rate on the existing mortgage

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Fifteen years ago, The Food Pantry bought a new building for $600,000. It borrowed $500,000 on a 30-year mortgage with a 6 percent fixed rate and monthly payments. The current outstanding balance on the mortgage is $355,000. Today, the organization can get a 15-year fixed-rate mortgage with an interest rate of 4.32 percent. The mortgage would require monthly payments in arrears. It will cost The Food Pantry $20,000 to do the refinancing. Should the organization refinance the mortgage under those terms? Hints: Since you know The Food Pantry could use the $20,000 it will cost to refinance the mortgage to pay off some of the principal on its current mortgage, you have decided to use the interest rate on the existing mortgage as the discount rate for your analysis. Be sure to include the cost of refinancing in the amount you intend to borrow.

Reference no: EM133072496

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