Borrower Joe has an existing loan that requires 15 more years of monthly payments of $1,040. He is considering refinancing the loan balance of $117.095.08 with a new loan at the current market rate of 5.675% for 15-year loans. Both the old loan and the new loan require 2 points plus $500 in origination fees. What is the NPV of the refinancing decision at an opportunity rate of 5.675%?

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Effective Interest Rate

The term interest rate can be defined as the amount that is charged by the lender as a percentage on the principal amount. Interest rate which is charged annually is known as annual percentage rate.