Question

The loan balance is now $151,806.62 and rates for this a mount are currently 9.0% for...

The loan balance is now $151,806.62 and rates for this a mount are currently 9.0% for 23 years. Origination fees and closing costs are $4,500 and closing costs are not financed by the lender. What is the ef fective cost of refinancing?

(A) 9.00%

(B) 10.85%

(C) 15.32%

(D) 9.39%

Homework Answers

Answer #1

The correct answer is option D i.e. (D) 9.39%

Step 1- Calculate the monthly payment for the mortgage loan i.e.

using pmt function of excel =pmt(rate,npr,pv)

rate = 9%/12 = 0.0075

npr = 23x12 = 276

pv = -(151806.62+4500) = -156306.62

PMT = $1343.09

Montlhy payment of mortgage loan is $1343.09

Step 2- Calculate monthly effective cost of refinancing

using rate function of exct = rate(npr,pmt,pv)

npr=23*12 = 276

Pmt = -1343.09

pv = 151806.62

Rate = 0.782%

Step 3- yearly effective cost of refinancing = 0.782% x 12 =9.384% or say 9.39%

For further clarrification Please comment

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