A mortgage for $200,000 with interest rate of 7.20%, fixed monthly payments, and term of 30 years was originated 10 years ago. If the loan's current balance is refinanced for the rest of the original term of at the rate of 6.30% with monthly payments, what is the implied annual savings rate given that the existing loan has a refinancing fee of 4% of the remaining balance at the time of refinancing and that loan is expected to be outstanding for 9 years? Selected Answer: Correct Answer: A. Below 6% E. Between 12% and 14%

A mortgage for $200,000 with interest rate of 7.20%, fixed monthly payments, and term of 30 years was originated 10 years ago. If the loan's current balance is refinanced for the rest of the original term of at the rate of 6.30% with monthly payments, what is the implied annual savings rate given that the existing loan has a refinancing fee of 4% of the remaining balance at the time of refinancing and that loan is expected to be outstanding for 9 years? Selected Answer: Correct Answer: A. Below 6% E. Between 12% and 14%

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

A mortgage for $200,000 with interest rate of 7.20%, fixed monthly payments, and term of 30 years was
originated 10 years ago. If the loan's current balance is refinanced for the rest of the original term of at the rate of
6.30% with monthly payments, what is the implied annual savings rate given that the existing loan has a
refinancing fee of 4% of the remaining balance at the time of refinancing and that loan is expected to be
outstanding for 9 years?
Selected Answer:
Below 6%
O A.
Correct Answer:
Е.
Between 12% and 14%

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