Tom got a 30 year fully amortizing FRM for $1,500,000 at 6%, with constant monthly payments. After 3 years of payments, rates fall and he can get a 27 year FRM at 5%, but he must pay 2 points and $1000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee now but saves money in the future in the form of lower payments. What is the annualized IRR of refinancing for Tom assuming he prepays the new loan 5 years after refinancing? (Clarification: Tom will prepay the new loan 3+5=8 years after the house is purchased)
Tom got a 30 year fully amortizing FRM for $1,500,000 at 6%, with constant monthly payments. After 3 years of payments, rates fall and he can get a 27 year FRM at 5%, but he must pay 2 points and $1000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee now but saves money in the future in the form of lower payments. What is the annualized IRR of refinancing for Tom assuming he prepays the new loan 5 years after refinancing? (Clarification: Tom will prepay the new loan 3+5=8 years after the house is purchased)
Algebra and Trigonometry (6th Edition)
6th Edition
ISBN:9780134463216
Author:Robert F. Blitzer
Publisher:Robert F. Blitzer
ChapterP: Prerequisites: Fundamental Concepts Of Algebra
Section: Chapter Questions
Problem 1MCCP: In Exercises 1-25, simplify the given expression or perform the indicated operation (and simplify,...
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Transcribed Image Text:QUESTION 11
Tom got a 30 year fully amortizing FRM for $1,500,000 at 6%, with constant monthly payments. After 3 years of payments, rates fall and he can get a 27 year
FRM at 5%, but he must pay 2 points and $1000 in closing costs to get the new loan. Think of the refinancing decision as an investment for Tom, he pays a fee
now but saves money in the future in the form of lower payments. What is the annualized IRR of refinancing for Tom assuming he prepays the new loan 5 years
after refinancing?
(Clarification: Tom will prepay the new loan 3+5=8 years after the house is purchased)
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