Assume you have a 6% 30-year mortgage for $100,000 with now 10 years to maturity (annual...
Assume you have a 6% 30-year mortgage for $100,000 with now 10 years to maturity (annual payments with exactly one year to the next payment). You are considering a refinance of the loan at 4% with a refinancing fee of $4,000.
What is the new payment, if you choose to refinance. Is refinancing with the new rate (4%) a good idea?
Homework Answers
New payment = $7085.56
| Original loan | PV | 100000 |
| Rate | Rate | 6% |
| Term | Nper | 30 |
| Number of payments done | 20 | |
| Annual payment | PMT | $7,264.89 |
| Principal paid off in 20 payments | -46529.77 | |
| Balance on loan remaining | 53470.23 | |
| Refinancing fee | 4000 | |
| Total loan amount | PV | 57470.23 |
| Term | Nper | 10 |
| Rate | Rate | 4% |
| Annual payment | PMT | $7,085.56 |
Total payment under refinancing = 7085.56*10 = 70855.6
Payment without refinancing = 7264.89* 10 = 72648.9
Hence refinancing is a good option.
WORKINGS
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