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Outstanding balance of the loan

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An investor obtained a fully amortizing mortgage five years ago for $95,500 at 11 percent for 30 years. Mortgage rates have dropped, so that a fully amortizing 25-year loan can be obtained at 10 percent. There is no prepayment penalty on the mortgage balance of the original loan, but 3 points will be charged on the new loan and other closing costs will be $2,000. All payments are monthly. Assume that the investor borrows only an amount equal to the outstanding balance of the loan.

Required:

a. Should the borrower refinance if he plans to own the property for the remaining loan term?

b. Should the borrower refinance if he planned to own the property for only five more years?

Reference no: EM133113900

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