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Assume that you are a homeowner, and are trying to determine if you should refinance your mortgage. The interest rate on your existing mortgage is 4.875%, and you have 22 years of payments remaining. Your unpaid mortgage balance is $285,000. If you refinance the mortgage, you must pay $7,000 in upfront fees to obtain a new 30 year mortgage. The interest rate on your new mortgage will be 4.3%.

A. What is the monthly mortgage payment on your existing mortgage?

B. What would be the monthly mortgage payment on the new (30 year) mortgage?

C. If you take out the new 30 year mortgage, how much interest will you pay across the entire 30 year period?

D. You are 99.9% certain that you will live in this house for exactly 7 more years, at which time you will pay off the remaining mortgage balance and move (regardless of whether you refinance the mortgage).

What is the present value of your expected net savings (or loss) if you refinance?

Would it be in your best financial interests to refinance the mortgage today?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92852097

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