Use annual cash flow analysis

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Reference no: EM131910407

When Patrick purchased his home, he borrowed $150,000 from his bank at 6% interest rate per year to be repaid in 180 equal annual end-of-month payments in 15 years. After making 120 payments, Patrick found he could refinance the balance due on his loan at 5% interest for the remaining 5 years. To refinance the loan, Patrick must pay the original lender the balance due on the loan, plus a penalty charge of 2% of the balance due for this new 5-year loan. To the new lender, he also must pay a $1,000 service charge to obtain the loan. The new loan would be made equal to the balance due on the old loan, plus the 2% penalty charge of the amount owed to be paid to the previous lender, and the $1,000 service charge to the new lender. Should Patrick refinance the loan, assuming that he will keep the house for the next 5 years? Use an annual cash flow analysis for solving this problem?

Reference no: EM131910407

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