Question

You are starting to have second thoughts about moving. After going back and forth for several weeks you decide that you will make a decision based on whether or not you will refinance the house. If you refinance you will stay, if you don’t you will move. You can refinance the home with a new interest rate of 3.75% for a 30 year term. You will refinance on the same day you would have closed on the home. The balance of the new loan will be $189,452.50, and the cost of refinancing is 4.8% of the loan amount. Assume you anticipate selling the home (or refinancing again) in 7 years.

13. What is the net benefit of refinancing? Round to two decimal places. *Hint you are solving for net benefit of refinancing, not solving for NPV (so you do not need a discount rate to answer this question).

1. $858.31
2. $877.38
3. $1,206.02
4. $1,176.37

14. Will you be moving to Costa Rica?

A) Yes

B) No

NOTE: Original Loan Balance is not needed for this problem. Original loan has 1,000 payment per month and we need to compare with refinance option. New loan balance is already stated in the problem

Answer 1

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SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

13. ANSWER : C : 1206.02

14. ANSWER : NO :