What is gain from refinancing

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Suppose you decide to borrow $330,000 of cash to purchase a house and take out a 20-year fixed rate mortgage that has a quoted rate of 8% per year.

Problem a) What is the size of your monthly payment?

Problem b) Suppose that just after making your 60th monthly payment, mortgage rates are quoted at 6% per year for both 10-year and 30-year mortgages. Suppose you decide to refinance using a 30-year mortgage. What is your gain from refinancing (ignoring transactions costs)?

Reference no: EM132969428

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