question archive A homeowner obtained a mortgage 5 years ago for $400,000 at 12 percent amortized over 20 years
A homeowner obtained a mortgage 5 years ago for $400,000 at 12 percent amortized over 20 years
Subject:FinancePrice: Bought3
A homeowner obtained a mortgage 5 years ago for $400,000 at 12 percent amortized over 20 years. Mortgage rates have dropped, so that a new 15-year loan can be obtained at 10 percent. There is no prepayment penalty on the mortgage balance of the original loan, but three points will be charged on the new loan and other closing costs will be $8,000. Assume the homeowner borrows only an amount equal to the outstanding balance of the existing loan and assume that the borrower's required rate of return from refinancing is 11%. Should the borrower refinance if he plans to be in the home for the remaining loan term?
