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a. Payment on old loan b. Current balance c. Monthly payment $ 1,199.10

a. Payment on old loan b. Current balance c. Monthly payment $ 1,199.10

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Five years ago you borrowed $200,000 to finance the purchase of a $240,000 home. The interest rate on the old mortgage loan is 6 percent. Payments are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 4 percent with monthly payments for 30 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $6,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 4 percent. Required: a. What is the payment on the old loan? b. What is the current loan balance on the old loan (five years after origination)? c. What would be the monthly payment on the new loan? d. Should you refinance today if the new loan is expected to be outstanding for five years? Note: For all requirements, Do not round intermediate calculations and round your final answer to 2 decimal places. a. Payment on old loan b. Current balance c. Monthly payment d. Should you refinance today? $ Yes 1,199.10
Transcribed Image Text:Five years ago you borrowed $200,000 to finance the purchase of a $240,000 home. The interest rate on the old mortgage loan is 6 percent. Payments are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 4 percent with monthly payments for 30 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $6,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 4 percent. Required: a. What is the payment on the old loan? b. What is the current loan balance on the old loan (five years after origination)? c. What would be the monthly payment on the new loan? d. Should you refinance today if the new loan is expected to be outstanding for five years? Note: For all requirements, Do not round intermediate calculations and round your final answer to 2 decimal places. a. Payment on old loan b. Current balance c. Monthly payment d. Should you refinance today? $ Yes 1,199.10
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